The euro hit a two-week high on Thursday after the European Central Banks left interest rates unchanged and stopped short of a formal commitment to further expand its huge asset-purchase programme. The ECB repeated that it would only extend its 1.74 trillion euro asset purchase programme - intended to run until the end of March 2017 - if necessary, until it sees a sustained adjustment in the path of inflation consistent with its inflation target.
The decision to leave rates on hold was expected by almost all 70 analysts polled by Reuters but a sizable minority also expected an extension of the asset buys. The euro gained 0.7 percent on the day to hit $1.1316 after the policy statement, its strongest since August 26. The dollar also hit a two-week low of 94.514 against a basket of major currencies.
"The bank does not mind holding back with respect to (using) more aggressive measures, but the (bigger) question is how long they can afford to wait given that they are very late in the game of QE," said ThinkMarkets analyst Naeem Aslam. Traders expected relatively little from a news conference by ECB chief Mario Draghi beginning at 1230 GMT. "The bar is very, very high for Draghi to be able to deliver any sort of dovish surprise here," said ING currency strategist Viraj Patel, from London. "It's really difficult to see him driving the euro lower."
"Our idea is that it's going to be a repeat of what we saw in May, with a Draghi disappointment - that's the balance of risks," he added. The euro is barely 3 percent weaker against the dollar than when the bond-purchase programme was first announced, in January 2015, and it is up almost 4 percent this year. The yen edged up 0.2 percent against the dollar to 101.62 yen, clinging to gains of almost 3 percent made in the last four days, after a Bank of Japan deputy governor gave few fresh clues on whether the central bank will expand its monetary stimulus this month.
Analysts said the comments by BoJ Deputy Governor Hiroshi Nakaso seemed similar in tone to remarks by BoJ Governor Haruhiko Kuroda earlier this week, which acknowledged the costs of the BoJ's aggressive stimulus. "The main message doesn't seem all that different ... The general tone of weighing the costs and benefits were in Governor Kuroda's comments as well," said Shinichiro Kadota, senior FX and yen rates strategist for Barclays in Tokyo. Data showing that China's imports unexpectedly rose in August for the first time in nearly two years helped lend support to the Australian dollar, which rose half a percent to hit a three-week high of $0.7716.
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