March 10, 2016 / 12:13 AM / 4 years ago

Euro rallies on ECB's Draghi rate-cut remark

NEW YORK (Reuters) - The euro jumped to a three-week high against the dollar on Thursday, rallying from a six-week low after European Central Bank (ECB) President Mario Draghi said he did not anticipate more interest rate cuts to revive a sluggish euro zone economy.

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

Europe’s shared currency earlier fell 1.6 percent against the greenback as the ECB unleashed a raft of measures, many of which the market had not expected, to stimulate euro zone growth and inflation.

The ECB sliced its marginal and refinancing rates and made a widely expected 10-basis-point cut in deposit rates. It also expanded its bond-buying program to include corporate debt.

While Draghi said he did not expect further easing, he did say interest rates would remain low for a long time.

“We’re seeing this rush to cover shorts because of that one statement from Draghi that he does not anticipate further rate cuts,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

“But when the dust settles, I think the euro is still going to go lower, based on the fact that the ECB exceeded market expectations with its suite of policy tools, and also market positioning heading into today’s meeting was far less bearish for the euro than we saw in previous meetings.”

The euro EUR= recovered from six-week lows against the dollar of $1.0823 to trade at a three-week high of $1.1217 as money market rates in the euro zone rose on reduced expectations for further deposit rate cuts. The euro was last at $1.1120, up 1.1 percent.

The euro’s near 4-cent trading range was the biggest since the 4.4-cent range on Dec. 3 when the ECB cut its deposit rate by a less-than-expected 10 basis points.

Against the Japanese yen, the euro hit a three-week high and was last at 126.59 EURJPY=, up 1.5 percent.

The single euro zone currency also posted gains against the British pound EURGBP= and the Swiss franc EURCHF=.

Expectations were high that ECB policymakers were intent on boosting inflation to help revive the euro zone economy.

“It should be supportive of risk sentiment, but it also shows limits on central bank policies. The snapback in the euro after its initial fall showed traders seized on what Draghi said,” said Ian Gordon, G10 FX strategist at Bank of America Merrill Lynch in New York.

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Richard Leong in New York Patrick Graham in London; editing by Jeffrey Benkoe and Richard Chang

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