[NEW YORK] The euro rocketed 3.1 per cent against the dollar and 2.6 per cent on the yen Thursday after the European Central Bank's new stimulus efforts fell short of market expectations.
The move reversed a month of losses that were the result of rising expectations that the ECB would both slash its key interest rate and expand its bond purchases to counter weak eurozone growth.
Seeing its US counterpart the Federal Reserve head in the opposite direction, toward a rate hike, markets had driven the euro steadily lower.
The ECB did decide to offer more stimulus support Thursday, but the rate cut was smaller than expected, and there was no expansion of the value of its bond purchase program - only a broadening of the types of bonds it buys and an extension of the program's end date.
"The package, however, fell woefully short of the market's - and our own - expectations," said Pantheon Macroeconomics economist Claus Vistesen.
But he also said that the sharpness of the market reaction reflected the squaring of traders' short-term positions more than a reassessment of the euro itself.
He said the picture for the coming months is still a likely further widening in the eurozone and US interest rate differential.
Federal Reserve Chair Janet Yellen reiterated her view in a congressional hearing Thursday that the US economy will continue to grow steadily and is ready for the first increase in the federal funds rate in more than nine years, which could come in two weeks.
But Kathy Lien of BK Asset Management said that, given some recent disappointment in US economic indicators, and the key November US jobs report coming Friday, dollar buyers had been cautious as well.
"Manufacturing and service sector activity slowed significantly in November, raising concerns about how good tomorrow's payrolls report could really be."