Euro firms against dollar on ECB stimulus expectations

Euro and Dollar (AFP)

NEW YORK: The euro firmed against the dollar on Wednesday (Jan 21) as the market expected the European Central Bank would launch its first full-scale asset-purchase programme on Thursday to prop up the ailing eurozone.

Omer Esiner said the greenback was on the defensive ahead of the ECB meeting after rallying to an 11-year peak against the euro from late last week.

"With expectations for additional policy easing by the ECB tomorrow currently so high, any disappointment in the result could see a violent rally in the euro as investors rush to cover short positions in the single currency," Esiner said.

According to analysts at UniCredit, the market is expecting the ECB to unveil a programme of quantitative easing worth between €500 billion (US$580 billion) and €800 billion (US$929 billion). The euro rose 0.5 per cent from Tuesday to US$1.1607.

Christopher Vecchio at DailyFX said the volatility in the forex market "is only an appetizer for what may be seen tomorrow around the actual ECB decision."

Central banks were front and center in the forex market on Wednesday. The Bank of Japan lowered its inflation forecast and raised its growth outlook for the world's third-largest economy after a two-day meeting, pushing the yen higher against the dollar and the euro.

The Bank of Canada, in a surprise move, cut its key interest rate to 0.75 per cent from 1.0 per cent, the first change in Canadian rates in four years. "This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada," the Bank of Canada said.

The Canadian dollar weakened against the dollar, which fetched CAN$1.2340 compared with less than CAN$1.20 late last week.