Euro dips after surge post-ECB

Fri Mar 11, 2016 7:39am EST
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By Patrick Graham

LONDON (Reuters) - The euro fell back on Friday after a shocking series of moves generated by Thursday’s European Central Bank meeting ended with its biggest gain in a month, undermining the case of those still calling for a fall to parity with the dollar.

The ECB took bold easing steps, including an expansion in asset buying and a deeper cut to already negative deposit rates that added up to far more than the market had expected and that should have weakened the euro.

But President Mario Draghi's comment that he expected the bank might not have to cut rates further fed concerns that officials in Europe and Japan are running out of ideas on how to weaken their currencies and raise inflation.

After a surge to more than $1.12 on Thursday, the euro eased almost 1 percent to $1.1085 in morning trade in Europe.

"A few months ago, if you had expected such measures were going to be deployed, you would have thought the euro would fall 3 percent," said Gian Marco Salcioli, head of FX sales at Italy's Intesa Sanpaolo Banca IMI in Milan.

"Going forward, this is not risk positive, and it is probably euro supportive but we need to see the price action of the next few days."

The 4-cent spread between the euro's highs and lows on Thursday equaled any of the euro's most volatile days over the past five years and were similar to moves after two of the past year's key ECB meetings - in December and last March.

After Japan's failure to cap the yen with a move to negative interest rates last month, the euro's gain weakens the argument made by many banks over the past year that higher U.S. interest rates will steadily strengthen the dollar against the euro and yen.   Continued...

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, in Beijing, China, January 21, 2016. REUTERS/Jason Lee