Euro jumped against the dollar within seconds of the ECB decision to cut its key interest rate by 25 basis points to 1.00 percent, marking the second rate cut in two months. This brings the rate to a record low, not seen since 2009. The ECB decision was expected amidst a deepening euro zone debt crisis as the central bank had to counter the twin threats of recession and deflation. EURUSD rose to 1.3424 within minutes of the news by 13:00 GMT. Then euro continued even higher during the ECB Press Conference and Mario Draghi said the ECB will extend liquidity measures. EURUSD reached 1.3458. However a few minutes before the end of the European session, EURUSD reversed course and pared gains to fall down to 1.3363 after Mario Draghi said the ECB did not consider cutting rates further and the decision to ease was not unanimous.
Sterling reached a session high of 1.5768 against the dollar from 1.5699 after the Bank of England kept the key interest rate on hold at a historic low of 0.50 percent as was predicted. MPC members also made the decision to keep its asset purchase program untouched until the 75 billion pound programme ends in February.
The US dollar weakened due to improved market sentiment which boosted risk appetite after the positive headline news from Europe. The greenback is perceived as a safe haven currency and usually falls when investors switch to riskier assets. Meanwhile, falling US jobless claims, which were the lowest in nine months helped boost market sentiment further. The number of people filing for state unemployment benefits for the first time fell 23,000 to the lowest level since late February to reach 381,000 last week . Economists generally believe it’s a sign of faster job creation and stronger economic growth when claims fall below the 400,000 threshold.
The Canadian dollar firmed to its strongest level in more than five weeks against its US counterpart after data showed Canada’s new home prices climbed. The CAD gained further after U.S. jobless claims fell in the latest week . When the US has good economic data, the loonie strengthens since the US is Canada’s major trading partner and most Canadian exports head down there. USDCAD fell to 1.0051 from an earlier high of 1.0103.
Gold climbed higher due to the weaker US dollar, gaining over $20 an ounce after the ECB Press Conference. Gold prices rose to $1,755.85 from an earlier low of $1,734.99. Usually gold prices and the US dollar have an inverse relationship, so when dollar falls, gold pries rise.