Euro rises to one week high vs dollar; no hint of ECB cut

Thu Jan 10, 2013 12:20pm EST
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NEW YORK (Reuters) - The euro rallied to a one-week high against the dollar on Thursday as investors saw no hints of the European Central Bank laying the groundwork for cuts to its benchmark interest rate.

Earlier, the central bank left the key interest rate unchanged at 0.75 percent. The euro immediately gained as some in the market had positioned for the small chance the ECB would cut rates.

Market participants had been wary ECB President Mario Draghi would signal rate cuts in the coming months at a news conference. When that did not happen, the euro's gains accelerated. <ECB/INT>

"By the end of the Q&A session, investors realized that (Draghi's) satisfaction with improvements in financial market conditions means the ECB is less inclined to increase stimulus," said Kathy Lien, managing director at BKX Asset Management in New York. "A rate cut was not discussed at all and that in of itself was enough to drive the euro/dollar sharply higher."

The euro was last up 1.2 percent at $1.3215 with the session peak at $1.3222. Some $5.49 billion in euros changed hands using Reuters Dealing data through the global session.

Draghi said euro zone economic weakness was expected to extend into 2013, but the region should gradually recover later in the year and risks to its outlook were on the downside.

"Mr. Draghi's normal tone of realism was replaced with a certain aura of optimism and giddiness," said Neal Gilbert, market strategist at GFT Forex, in Grand Rapids, Michigan. "He smiled more, defended a potential recovery more, and overall appeared to feel proud of the work he had done."

The euro was also bolstered by solid demand at a sale of mostly two-year Spanish debt, which caused Spain's benchmark 10-year bond yields to fall to a 10-month low.

"The Spanish bond auction was better than expected and that saw the euro rise," said Alexandre Dolci, FX strategist at BBVA in London.   Continued...

A picture illustration of coins from various countries laying on 10 Dollar and 100 kuna banknotes, taken in Zagreb January 18, 2011. REUTERS/Nikola Solic