WSJ:Euro Nears 2½-Year High After ECB Keeps Rates Unchanged
The euro climbed to close to a 2½-year high against the dollar Thursday after the European Central Bank left interest rates on hold.
The decision was widely anticipated by investors and economists, although some had said there was a chance of further easing this month given the anemic pace of inflation in the currency bloc.
Those possibilities included a reduction in interest rates, or the introduction of a negative deposit rate—effectively charging banks to hold cash at the ECB in a bid to boost the economy and head off the threat of deflation.
The euro extended gains to trade up 0.3% on the day at $1.3960 against the dollar, a whisker away from its high for the year.
"Without action and little new in the way of guidance, the market looks poised to challenge the $1.40 level," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
European stocks trimmed earlier gains. The Stoxx Europe 600 index was 0.3% higher following the rate decision.
The ECB is treading a fine line. Euro-zone inflation—which picked up slightly to 0.7% in April—remains far below the ECB's target of just under 2%. But recent data point to gathering momentum in the economic recovery, even in former trouble spots such as Spain and Italy, suggesting urgent action isn't required.
Even so, ECB President Mario Draghi has stepped up attempts to publicly talk down the currency in recent weeks, highlighting its strength as a drag on inflation. Those efforts have had little effect, with investors preparing to wait for concrete action.
"That interest rates remain unchanged following yet another miss on inflation in April highlights that the bar for further easing is higher no matter how dovish the ECB sounds and that is why the euro is at its high for the year," said Michael Metcalfe, head of macro strategy at State Street Global Markets. STT +1.10%
Attention now turns to Mr. Draghi's news conference, with investors looking for any hints about future easing.
Some analysts expect beefier stimulus measures in June, when the ECB unveils its new inflation forecasts.
