Euro gains as ECB holds back 'bazooka,' Sterling falls on Brexit fears

By Karen Brettell

NEW YORK (Reuters) - The euro rose on Thursday after the European Central Bank disappointed some investors looking for a larger stimulus boost, while sterling fell as the prospect of a no-deal Brexit appeared more likely.

The ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.

However, "the European Central Bank did not present a big new bazooka," said Carsten Brzeski, global head of macro at ING. It offered "a well-engineered extension of all well-known instruments to ensure that the current level of monetary accommodation is extended until at least the spring of 2022, hoping for the vaccine to have done its job by then."

The ECB also said it is monitoring the euro’s exchange rate with regard to its possible implications for the medium-term inflation outlook, after it last week hit a two-and-a-half year high against the greenback.

Analysts and market participants are watching to see if global central banks indicate they may act to stem the relative strength of their currencies as the greenback tumbles.

"It's the second major central bank to casually note exchange rate developments recently, underscoring the sliding USD," said Mark McCormick, global head of FX strategy at TD Securities. "We don't think there is too much the ECB can do to reverse market trends, though they can take some steam off the top."

The Bank of Canada on Wednesday attributed strength in the Canadian dollar to U.S. dollar's broad-based decline.

The euro was last up 0.49% on the day at $1.2082. The greenback dipped 0.61% against the loonie to $1.2741 after earlier reaching $1.2708, the lowest since April 2018.

The greenback also weakened after data on Thursday showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week as mounting COVID-19 infections caused more business restrictions.

Near-term U.S. fiscal stimulus appears unlikely after Democrat House Speaker Nancy Pelosi suggested wrangling over a spending package and coronavirus aid could drag on through Christmas.

Sterling slipped as market participants became more cautious about the risk of a no-deal Brexit.

British Prime Minister Boris Johnson said on Thursday there was "a strong possibility" Britain and the EU would fail to strike a trade deal, but vowed to do whatever he could to avoid a tumultuous split in three weeks.

Bank of England Governor Andrew Bailey has said a no-deal Brexit would cause more lasting damage to Britain's economy than the COVID-19 pandemic.

Sterling was last down 0.72% at $1.3305.

The British currency is struggling to get above technical resistance in the $1.35 area, and this is the third time it has failed at this level since December 2019, said Tom Fitzpatrick, global head of CitiFX Technicals.

The Australian dollar hit a two-and-a-half year high on growing optimism that global growth will improve, and that the Reserve Bank of Australia is unlikely to loosen policy further after cutting rates to a historic low of 0.1% in November.

"China's economy showing mounting signs of strength, that is boding better for a global recovery and I think that's leading the market to unwind expectations of looser policy from down under," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The Aussie gained 1.26% to $0.7537.

It also bounced against the New Zealand dollar to one-month high of $1.0641, and is up from a seven-and-a-half-month low of $1.0419 on Dec. 1.

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Currency bid prices at 3:30PM (2030 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index $90.7590 91.0960 -0.36% +0.00% +91.1530 +90.6640

Euro/Dollar $1.2141 $1.2082 +0.49% +8.30% +1.2159 +1.2073

Dollar/Yen 104.1750 104.2200 -0.03% -4.08% +104.5750 +104.1850

Euro/Yen 126.49 125.92 +0.45% +3.71% +126.7300 +125.8700

Dollar/Swiss 0.8868 0.8896 -0.29% -8.34% +0.8901 +0.8853

Sterling/Dollar 1.3305 1.3403 -0.72% +0.33% +1.3409 +1.3245

Dollar/Canadian 1.2741 1.2820 -0.61% -1.92% +1.2828 +1.2708

Aussie/Dollar 0.7537 0.7442 +1.26% +7.40% +0.7538 +0.7426

Euro/Swiss 1.0765 1.0746 +0.18% -0.80% +1.0769 +1.0739

Euro/Sterling 0.9123 0.9015 +1.20% +7.91% +0.9142 +0.9010

NZ 0.7094 0.7022 +1.03% +5.42% +0.7094 +0.7013

Dollar/Dollar

Dollar/Norway 8.7660 8.8325 -0.89% -0.21% +8.8475 +8.7525

Euro/Norway 10.6457 10.6890 -0.41% +8.21% +10.7130 +10.6170

Dollar/Sweden 8.4382 8.4721 +0.02% -9.73% +8.5004 +8.4271

Euro/Sweden 10.2460 10.2440 +0.02% -2.13% +10.2767 +10.2297

(Additional reporting by Julien Ponthus in London; Editing by Alexandra Hudson and Dan Grebler)

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