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Euro falls after ECB decides not to cut rates

London

THE euro weakened on Thursday after the European Central Bank (ECB) announced more stimulus to fight Covid-19's impact but did not lower interest rates, with the single currency falling to the day's low as investors rushed for greenbacks.

The ECB approved fresh stimulus measures on Thursday to help the eurozone economy cope with the growing cost of the novel coronavirus epidemic, but kept interest rates unchanged in a move that may disappoint financial markets.

The euro, down before the announcement, jumped briefly to US$1.13 but then skidded to as low as US$1.1198, down 0.5 per cent on the day. Market watchers had expected an ECB cut to the main deposit rate of 10 basis points (bps).

The US dollar rebounded sharply after the ECB announcement, and was last up 0.4 per cent against a basket of currencies at 96.613.

Analysts said the US dollar had rallied as swap spreads on major currencies blew out and investors scrambled for the US currency. "It's all about dollar liquidity, the cross-currency basis swap has blown out. I would assume it's banks/corporates-driven. We are moving to the next phase of the sell-off," said Kenneth Broux, a strategist at Societe Generale.

Safe-haven currencies remained in demand on Thursday with the Japanese yen and the Swiss franc leading gains.

The US dollar had earlier struggled after US President Donald Trump banned travel from Europe to stem the Covid-19 spread.

With the latest ban posing a fresh disruption to the global economy, traders were also disappointed by the lack of broad measures in Mr Trump's plan to fight the pathogen, prompting traders to bet on further aggressive easing by the Federal Reserve.

Money markets are now expecting another 100 bps of easing from the Fed by next week, taking the benchmark policy interest rates to zero after a hefty half-point rate cut last week.

The Japanese currency climbed 0.5 per cent versus the greenback to 103.98 yen, below a four-year high of 101.28 hit on Monday. The Swiss franc climbed but then fell and was last down 0.2 per cent at US$0.94.

Risk aversion was the dominant theme in currency markets on Thursday as Asian and European stock markets were a sea of red, forcing traders to stampede out of currencies heavily geared to the global economy such as the Norwegian crown and the Australian dollar. REUTERS