Dollar gains vs euro as ECB holds policy steady, launches review

Dollar gains vs euro as ECB holds policy steady, launches review

The dollar rose against the euro on Thursday after the European Central Bank left unchanged its key interest rates and stimulus programs and launched a broad review of its policy that was likely to see new President Christine Lagarde redefine the ECB’s main goal and how to achieve it.

The euro zone’s central bank has fallen short of its inflation target of just under 2% for years, even after Lagarde’s predecessor, Mario Draghi, launched increasingly aggressive stimulus measures.

“We will not leave any stone unturned and how we measure inflation is clearly something we need to look at,” Lagarde said.

“Basically, what she is saying is that they are reassessing some of the tools they have been using for basically a decade to booster up inflation to no avail,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

ECB rate-setters did not make any policy change on Thursday, simply standing by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal.

The euro was 0.25% lower against the greenback at $1.1063, its weakest since Dec. 9.

The Japanese yen strengthened and China’s yuan fell to a two-week low on Thursday as investors grew more anxious about the spread of a virus in China.

Deaths from the flu-like coronavirus stand at 17 and almost 600 people are infected. China has locked down Wuhan, a city of 11 million people, where the outbreak was believed to have originated.

The moves up in the safe-haven yen and down in the yuan were measured, suggesting investors were not yet panicking about the virus.

Against the yen, which tends to draw investors during times of geopolitical or financial stress, the dollar was 0.36% lower at 109.43 yen.

The dollar gained 0.36% versus the offshore Chinese yuan to 6.9337 yuan. The Chinese currency has now lost more than 1% of its value since it touched six-month highs on Monday. The onshore yuan is on course for its worst week since August.

Sterling was 0.24% lower, but remained close to a 2-week high hit on Wednesday, as data this week reduced market expectations of a interest rate cut at next week’s Bank of England policy meeting.