Euro gains after ECB rates unchanged

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From International Desk - International Currency News

THE euro strengthened against other major currencies on Thursday after the European Central Bank decided not to cut interest rates.

At 2200 GMT (0900 AEDT) the euro was trading at $1.3107, up from $1.2971 late on Wednesday. The euro also rose sharply against the Japanese yen, trading at 124.28 yen, up from 122.00 yen late on Wednesday.

As expected, the ECB decided to leave its interest rates unchanged at 0.75 per cent, its lowest level in history.

However, ECB chief Mario Draghi told a news conference that the bank weighed possibly cutting rates further before deciding on the status-quo move.

"Yes, we discussed the possibility of doing it. But the prevailing consensus was to leave rates unchanged," Draghi said.

With inflation in the 17-country eurozone currently expected to remain in line with the ECB's goal of close to, but just under, 2.0 per cent, "this will allow our monetary policy stance to remain accommodative," Draghi said.

The bank president offered a somewhat hopeful appraisal of the economy, predicting that economic activity would "gradually recover" later in 2013.

At the same time, the ECB released projections that showed the eurozone economy contracting by 0.5 per cent in 2013 before recovering to grow by 1.0 per cent next year.

The previous forecasts in December penciled in a contraction of 0.3 per cent this year and growth of 1.2 per cent in 2014.

In spite of Draghi's comments, "there is little hard evidence to support Mr Draghi's optimism," observed BK Asset Management managing director Boris Schlossberg.

Schlossberg said the euro's strength against the dollar "may prove to be fleeting if the the eurozone economic data does not show some signs of improvement relatively soon."

David Song, currency analyst at DailyFX, said the dollar could see renewed strength with Friday's release of the monthly nonfarm payrolls for February.

The data "may increase the appeal of the dollar as job growth is expected to pick up in February," Song said.

The dollar gained against the Japanese yen, trading at 94.83 yen late on Thursday, up from 94.04 late Wednesday.

The pound lost ground to the dollar, trading at $1.5012 on Thursday from $1.5017 on Wednesday.

The dollar traded lower to the Swiss franc, trading at 0.9425 Swiss francs, compared with 0.9482 a day earlier.

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