The euro soared against the U.S. dollar Thursday after the European Central Bank cut its benchmark interest rate by only 25 basis points, surprising markets which had expected a bigger reduction.
The ECB lowered its key interest rate to 1.25%, a fresh record low, but most economists expected a cut of 50 basis points to 1%. Read more.
Following the decision, the euro surged to an intraday high of $1.3415. In recent trading, the euro was up 1.1% to $1.3380.
"The market was looking for a 50 basis points cut, which immediately triggered euro buying, but selling interest has been heavy over 1.3400 and forced a move back in to the 1.3350 area," said analysts at Action Economics.
"The accompanying press conference will be scrutinized for any mention of other potential monetary policy measures," they said.
The dollar index which measures the greenback against a trade-weighted basket of currencies, slipped 0.6% to 84.78.
The British pound rose 1.6% against the dollar to $1.4674, while the greenback gained 0.8% against the Japanese yen to 99.45 yen.
Sterling was boosted by data showing a surprise rise in house prices. See house price story.
"Risk conditions were again a very important influence and a mood of increased confidence allowed sterling to push above $1.45 on Thursday with the Nationwide reporting a surprise monthly increase in house prices for March," said analysts at Sucden Financial.
In the U.S., weekly jobless claims and factory orders data are on tap.
Commodity currencies gain
Traders also poured into currencies from countries that are heavily dependent on commodities on Thursday on hopes that leaders from the world's top countries will boost the resources of the International Monetary Fund to prop up ailing emerging-market economies.
The Australian, New Zealand and Canadian dollars climbed by over 1% against the Japanese yen and by nearly that amount against the U.S. dollar, as the latest reported drafts of the G20 communiqué show that world leaders meeting in London may decide to triple the IMF's war chest to $750 billion. See G20 story.
Reports also indicated that the IMF may issue bonds backed by special drawing rights, a move that could inject more cash into the global economy.
Press reports also indicate that countries will refrain from competitive currency devaluations.
"If the IMF is allowed to issue SDR-denominated bonds, risky assets will rally substantially in turn providing support to cross yen currency pairs," said strategists at BNP Paribas.
Emerging-market equities did rally on Thursday, with the Hang Seng jumping over 6% in Hong Kong and the BUX climbing nearly 4% in Budapest.
"Any signs of broad consensus over further spending support to emerging economies (likely via the IMF) and on a market friendly statement suggesting all will be done by G20 leaders to stave off a depression from the ongoing global recession, should also be enough to contain another spike in risk aversion," said currency analysts from Societe Generale.
In the commodity markets, oil futures soared to an intraday high of $51.53 a barrel in electronic trading on Globex.
