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LONDON)
By Kate Duguid
NEW YORK, June 6 (Reuters) - The euro jumped half a percent
against the dollar on Thursday after the European Central Bank
refrained from hinting at an interest rate cut and instead
pushed back the timing of its first rate hike since the 2008
financial crisis.
The euro EUR= rose because investors had expected an even
more dovish signal from the ECB and an acknowledgement of weak
economic growth in the bloc.
"One of the more dovish outcomes we envisaged did not
materialize. The (ECB) governing council extended its forward
guidance timing, but also under-delivered on the TLTRO front,"
TS Securities told clients.
The ECB said it would lend to banks at a rate just 10 basis
points above its minus 0.4% deposit rate in a new targeted
longer-term refinancing operation, or TLTRO. Money market futures are now pricing in a 45% chance of a 10
basis point euro zone rate cut by the end of year versus 75%
before the ECB statement.
The euro has strengthened recently on the back of dollar
weakness caused by rising bets on a U.S. interest rate cut.
The ECB "is taking a more proactive approach, rather than
the wait-and-see approach you're seeing from the Fed," said Minh
Trang, senior foreign exchange trader at Silicon Valley Bank.
That has led the euro to rally and the dollar to fall
because "if (the Fed) is behind the curve, they'll have to make
more drastic moves if the economy turns on them," said Trang.
"If you look at the last six months, (the Fed) has been
behind the curve. The market began pricing in a (U.S.) rate cut
six months ago."
The single currency was 0.47% higher at $1.127 after
brushing a 1-1/2-month high of $1.131 earlier this week.
The dollar index .DXY fell to a two-month low of 96.749
midweek on investor risk aversion and dovish comments from
members of the Fed, including Chair Jerome Powell, that
heightened prospects of an interest-rate cut.
Japan's yen on Thursday JPY= strengthened 0.22% to 108.22
per dollar, after a lack of progress in U.S.-Mexico trade talks
hurt risk sentiment and drove investors to safe-haven
currencies.
U.S. President Donald Trump unexpectedly told Mexico last
week to take a harder line on curbing illegal immigration or
face 5% tariffs on all its exports to the United States.
The Mexican peso, already weighed down by trade concerns,
took a hit after credit ratings agency Fitch downgraded the
country's sovereign debt on Wednesday to BBB from BBB+, just two
notches above junk status.