The euro held its ground on Thursday after the European Central Bank kept its benchmark interest rate close to zero, as expected, but the currency's modest gains could be short-lived if ECB chief Mario Draghi suggests more monetary easing is to come. The dollar backed away from multi-year highs, having hit a seven-year peak against the yen in Asian trading of 115.52, as traders sold into the greenback's rally before closely watched US nonfarm payrolls numbers on Friday.
The ECB kept its main refinancing rate at 0.05 percent and the rate on bank overnight deposits at -0.2 percent. The euro was up 0.3 percent at $1.2519, still close to a two-year trough of $1.2439 touched earlier in the week. Disappointing surveys of euro zone business growth, as well as the Bank of Japan's surprise decision last week to expand its already massive stimulus programme, have put pressure on the ECB to ease more in the euro zone, where deflation looms and growth is faltering.
But most investors expect the central bank to hold off from announcing any further policies this month as it waits for its already-announced policies to take effect. "I think it will be difficult for there to be any new announcements today," said Paul Robson, a currency strategist at RBS bank in London. "Really, it's the December meeting, when we've got updated forecasts, is probably when people are expecting the new information to come rather than today."
Draghi is also likely to be quizzed about a Reuters report that some national central bankers in the euro area planned to challenge him over what they see as his secretive management style and erratic communication. Nick Beecroft, non-executive chairman and senior markets consultant at Saxo Capital Markets in London, said Draghi was unlikely to respond to the BoJ moves just yet.
"We are in a full-blown currency war and the ECB will feel under pressure to take part in that, but it's too soon now." The dollar index inched down 0.2 percent to 87.291, having hit a 4 1/2-year peak of 87.606 on Wednesday. Against the yen, it was flat at 114.63 yen, after storming to a seven-year high of 115.52 overnight.
Data released on Wednesday showed private employers added 230,000 jobs in October, marking a record seven straight months of job gains exceeding 200,000. That boosted the greenback and fanned expectations of a strong payrolls number on Friday. Currencies of commodity-producing countries continued retreating as global growth concern weakened demand for exports such as crude oil and iron ore. The Australian dollar fell to a four-year low of $0.8553 against the US dollar in Asian trading, as iron ore - Australia's major export - fell to a five-year low amid slowing demand from key importer China. The Norwegian crown has also retreated steadily, losing around 5 percent in the past month as the price of crude oil - Norway's main export - has plummeted, hitting a four-year low this week. The euro fetched 8.5387 crowns, up 0.1 percent, after reaching a five-year high of 8.679 on Wednesday.
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