By Saumya Vaishampayan and Carla Mozee, MarketWatch
NEW YORK (MarketWatch) — The euro rose Thursday after the European Central Bank cut its key interest rate by 25 basis points to 0.5% on the back of weak economic data in the region.
The euro EURUSD +0.13% bought $1.320 after the ECB statement, compared with $1.3149 just before it was released. The euro exchanged hands at $1.3179 earlier on Thursday compared with $1.3202 late Wednesday.
The shared currency has gained against the U.S. dollar in the previous five sessions, and climbed roughly 3% versus the greenback last month, even as a expectations for a rate cut have strengthened after a batch of downbeat economic reports.
A lower benchmark interest rate can dampen a currency’s appeal as rate cuts tend to depress yields on sovereign bonds. But other forces were at work Thursday.
“The currency market has its hopes set on resultant economic improvements as rationale or buying the currency,” wrote Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., in written comments.
Many economists had expected the quarter-percentage point rate cut from 0.75%, where the rate has been since July 2012.
The central bank may also enact more measures to boost credit to small and medium-size businesses in the ECB press conference, some analysts have said.
A press conference held by ECB President Mario Draghi will begin at 8:30 a.m. Eastern.
The dollar extended losses on Wednesday after the U.S. Federal Reserve left monetary policy unchanged, but emphasized it could accelerate or slow asset purchases as needed. Fed Chairman Ben Bernanke had previously said the central bank was flexible, but this was the first time it was included in the statement accompanying a Fed policy decision.
The Fed stuck with its program of buying $85 billion a month in assets, but didn’t downgrade its view on the economy, as some economists had expected. Recent data on manufacturing, the labor and housing-construction markets have pointed to sluggish activity.
The next key economic report is due Friday, when the Labor Department releases jobs figures for April. A separate report released Wednesday showed private-sector employment growth slowed in April.
On Thursday, the ICE dollar index DXY -0.02% , a measure of the greenback’s moves against six other major currencies, was 81.559 versus 81.530 on Wednesday.
The WSJ dollar index XX:BUXX -0.41% , a rival gauge of the currency’s moves against a slightly wider basket, fell to 72.96 from 73.31.
China is also experiencing a slowdown in manufacturing growth, according to HSBC, which downwardly revised its China manufacturing gauge for April to 50.4 on Thursday. The result was lower than a preliminary print of 50.5, and much weaker than March’s reading of 51.6. The gauge remained above the 50 mark that separates growth from contraction.
Among other major currency pairs, the Australian dollar AUDUSD -0.27% fell back to levels seen late Wednesday after the government said approvals to build new homes fell 5.5% in March from February, compared with expectations for a rise of 1.5%.
The Aussie fell $1.0251. It had been at around $1.0271 ahead of the report from the Australian Bureau of Statistics.
Against Japan’s currency, the U.S. dollar USDJPY +0.57% bought 97.36 yen, little changed from ¥97.37 yen on Wednesday.
The British pound sterling GBPUSD +0.13% was $1.5582 compared with $1.5586. Sterling had risen on Wednesday after stronger-than-expected April PMI data for the U.K.
Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
