Euro falls on ECB's rate moves, end of QE by 2018

London

After initially rallying nearly half a per cent higher to US$1.1853, the single currency fell to the day's lows at US$1.1718 - marking an intraday range of 1 per cent as some analysts were disappointed about the timing of its rate hike.

Investors now price just a 30 per cent chance of a 10 basis point rate hike by July 2019, compared with a roughly 80 per cent chance earlier in the day.

"The hawks had been guiding for a June hike before the meeting and given the clear guidance the ECB gave today on interest rates, it had to be priced out," said AFS Group analyst Arne Petimezas based in Amsterdam.

Signalling the move would not mean rapid policy tightening in the coming months, the ECB also said that interest rates would stay at record lows at least through the summer of 2019, suggesting protracted support for the economy, even if at a lower level.

"It doesn't seem like we're at the stage where the hawks are on top of things." The euro's drop pulled the dollar higher with the index up 0.1 per cent on the day at 93.81.

In the London session, the dollar was trading broadly weaker before the ECB decision in the wake of the Fed's rate hikes, with future rate rises now priced in with a growing view that US economic strength could be nearing its peak, analysts said.

As expected, the Fed lifted its key overnight borrowing costs by a quarter percentage point for a second time this year, to between 1.75 and 2 per cent.

Elsewhere, the Canadian dollar edged lower against its US counterpart as the greenback broadly climbed and after Italy added to Canada's uncertain trade outlook, saying it will not ratify the European Union's free trade accord with the country.

The free trade agreement with Canada does not ensure sufficient protection for Italy's speciality foods, new Agriculture Minister Gian Marco Centinaio said in a newspaper interview.

Canada is also contending with new US tariffs on steel and aluminium imports as well as slow-moving talks to modernise the North American Free Trade Agreement. REUTERS