Euro ends sharply higher after wild swings on ECB moves

[NEW YORK] The euro swung about 3.5 per cent against the US dollar on Thursday in reaction to European Central Bank interest rate reductions followed by signals that more easing was not expected.

The ECB's initial announcement of reductions in key rates and a boost to quantitative-easing (QE) bond buying was more than expected, sending the euro down to nearly US$1.08, after having held close to US$1.10 since the beginning of the week.

But the single currency sharply reversed course after ECB President Mario Draghi's comments later that he did not expect further rate cuts.

The euro shot up to US$1.1218 before settling up 1.6 per cent at US$1.1183 at about 2200 GMT.

A similar ECB-driven whiplash sent European stocks soaring more than three percent before shrinking back into losses for the day.

Facing weak growth and inflation going into Thursday's meeting, the ECB did more than expected. It cut its central "refi" refinancing rate to zero percent from 0.05 per cent; its marginal lending facility to 0.25 per cent from 0.30 per cent; and its deposit facility to -0.40 per cent from -0.30 per cent.

In addition, it increased monthly QE bond purchases to 80 billion euros from 60 billion euros, and said the program would now include corporate bonds.

Tha commitment excited markets even as the ECB cut its growth and inflation forecasts for the 19-nation eurozone, and said it had more stimulus ammunition if needed.

But Mr Draghi then said in the post-meeting press conference that he did not anticipate more cuts, taking the air out of currency and stock gains.

"Let me say that rates will stay low, very low, for a long period of time, and well past the horizon of our purchases," he said.

However, he added, "taking into account the support of our measures to growth and inflation, we don't anticipate that it will be necessary to reduce rates further."

"That drew a bit of line under the euro in stark contrast to the otherwise dovish results we got from the ECB," said currency analyst Omer Esiner of Commonwealth Foreign Exchange.

The euro also added 1.5 per cent on the Japanese yen and 1.2 per cent on the British pound.

AFP