The euro retained its small gains against the dollar on Thursday but remained near a two-year low after the European Central Bank kept interest rates unchanged at historic lows as expected. Investors are now awaiting a news conference at 1230 GMT at which the bank's President Mario Draghi is expected to give further details of the ECB's plan to buy asset-backed securities (ABS) and covered bonds.
The bond purchase programme was announced in September as part of measures the bank hopes will boost the flagging euro zone economy and ward off the growing threat of deflation. The euro was up 0.1 percent on the day at $1.2634, about 50 pips off its two-year low of $1.2572, hit on Tuesday.
"My guess is that the euro can still rise," said Adam Myers, European head of currency strategy at Credit Agricole in London. "Whilst there has been a clearout of dollar positions overnight, there are still a lot of investors who are still very long on the dollar." Many in the markets are expecting Draghi to give a size for the ABS purchase programme during his news conference, although some traders cited reported comments by ECB Vice President Vitor Constancio suggesting a precise figure would not be forthcoming.
"Everyone is positioned for further details, and the market could be disappointed if there isn't a figure," Morgan Stanley's head of European currency strategy Ian Stannard said. "That could lead to a post-ECB rebound for the euro if there are no further measures, ... such as an extension into other asset classes, announced." A Reuters poll on Monday showed money market traders on average expect the ECB to buy a total of 200 billion euros of ABS and covered bonds over a year.
Expectations the ECB will be forced to buy sovereign bonds as part of a broad-based quantitative easing scheme have risen in recent months as the 18-nation bloc tips towards deflation. Rabobank puts the chances of QE "well beyond the 50 percent mark" although BlackRock's head of European and global bonds said on Wednesday that investors loading up on riskier euro zone government bonds in anticipation of QE were making a mistake.
The dollar earlier hit a nine-day low of 108.33 yen after weak global manufacturing data and a US Ebola health scare sent investors in search of safer assets. The greenback was last trading at 108.80 yen, down 0.1 percent on the day. The dollar index fell about 0.2 percent to 85.821, pulling away from a four-year high of 86.218 touched on Tuesday as investors took profits after the greenback's recent rally. The index has notched up a record-breaking 11 straight weeks of gains and posted the best quarterly rise in six years.
"Some investors, including some hedge funds, are using this as an opportunity to take profits" after the dollar's rally against the yen, said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. Traders are expected to remain cautious ahead of the closely watched US payrolls report on Friday, and are also warily monitoring developments in Hong Kong's ongoing pro-democracy protests.
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