The euro weakened on Thursday, as investors were unimpressed by the European Central Bank's stimulus measures to fight the economic fallout from the coronavirus outbreak. Investors instead flocked to safe-haven currencies such as the US dollar and Japanese yen.
The ECB approved fresh stimulus measures on Thursday to help the euro zone economy cope with the growing cost of the coronavirus epidemic, but kept interest rates unchanged. "The ECB has been grasping for straws," said Erik Bregar, head of FX strategy, at Exchange Bank of Canada, in Toronto.
"Arguably they still don't know what to do. But they very much felt the pressure to at least do something because every other central bank is lowering interest rates or doing multi-policy fronts that will help banks and businesses."
The fact that the ECB did not cut interest rates was a "minor surprise" for the market given that the money market curve had priced in a 10 basis-point easing. In mid-morning trading, the euro fell more than 1% to $1.1172.
The dollar rebounded sharply after the ECB announcement, and was last up 1% against a basket of currencies at 97.513. Analysts said the dollar had rallied as swap spreads on major currencies blew out and investors scrambled for the US currency.
Money markets are now expecting another 100 bps of easing from the Fed by next week taking the benchmark policy interest rates to zero after a hefty half point rate cut last week. The dollar fell 0.5% against the Japanese currency to 105.18, below a four-year low on Monday, but it rose 1% against the Swiss franc to 0.9478.
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