The euro was steady on Thursday after the European Central Bank raised rates for the first time since July 2008, but was off its multi-month peaks with investors edgy that expectations for more tightening this year could be dampened. The ECB raised its benchmark rate by 25 basis points to 1.25 percent, as expected, with some having the view the euro may weaken if President Jean-Claude Trichet, at a news conference at 1230 GMT, does not sound hawkish enough to keep alive expectations for another two rate hikes by year-end.
The single currency has risen more than 3 percent since Trichet's comments on March 3. He will need to make reference to "close monitoring" of price pressures in his remarks on Thursday to signal further rate rises are likely later in the year. "The key will be Trichet's tone in the subsequent conference and any extension of his hawkish rhetoric from the March meeting should keep the euro supported," said Chris Walker, strategist at UBS. The euro was down 0.3 percent on the day at $1.4280, unchanged after the ECB rate decision, but off a 14-month high of $1.4350 hit in on Wednesday. Options traders noted demand for short-term upside strikes in the $1.4400 region, as market players looked to protect against a further rise in the euro.
Against the yen, the euro fell one percent on the day, hitting day's low around 121.24 yen, with traders citing real money selling of euros. It was last down at 121.58. The currency market showed little reaction to Portugal's move to seek a bailout from the European Union, with the size of the package expected to be up to 80 billion euro ($114 billion).
The dollar was up 0.2 percent at 75.649 against a basket of currencies. The Bank of Japan kept monetary policy steady as expected and signalled its readiness to ease policy further, bucking a global trend of central banks withdrawing excess liquidity put in place during the financial crisis.
The dollar rose to a six-month high of 85.54 yen in Asia, almost 10 yen above its record low of 76.25 yen hit in March, days after Japan's devastating earthquake. It fell back to trade around 85.15 yen in European trade. The Australian dollar scaled a fresh 29-year peak against the greenback of $1.0489 before running into options selling. It was aided by data showing the Australian economy added a higher-than-expected 37,800 jobs in March.