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Euro Climbs After ECB Maintains Interest Rates, Emergency Bond Buying Scheme

euro march12 21jan21 lt

The euro spiked up against its major counterparts in the European session on Thursday, as the European Central Bank left its key interest rates and the size of the pandemic emergency purchase programme unchanged and signaled its willingness to act further to help counter the negative pandemic shock on the inflation target.

The Governing Council maintained the main refi rate at a record low of zero percent and the deposit rate at -0.50 percent. The marginal lending facility rate is at 0.25 percent.

"The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics."

The Governing Council retained the pandemic emergency purchase programme at EUR 1.85 trillion.

Net asset purchases under the PEPP will be conducted until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over.

The ECB said that the PEPP envelope can be recalibrated if required to maintain favorable financing conditions to help counter the negative pandemic shock to the path of inflation.

Proceeds from maturing securities under PEPP will be reinvested until at least the end of 2023.

"The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry," it added.

The currency appreciated during the Asian session, as investors bet that the Biden administration will pursue aggressive stimulus measures to boost the economy.

The euro firmed to a 1-week high of 1.2165 against the dollar, recording a 0.5 percent rise from Wednesday's closing value of 1.2104. Immediate resistance for the euro is likely seen around the 1.24 level.

After falling to a 2-day low of 125.26 at 5:00 pm ET, the euro gained 0.5 percent to 125.93 against the yen. The EUR/JPY pair had closed Wednesday's deals at 125.30. Should the euro gains further, it is likely to test resistance around the 127.5 region.

The Bank of Japan decided to leave its monetary policy unchanged and raised the growth projections.

The board voted 7-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The euro bounced off to 0.8868 against the pound, after a drop to 0.8830 at 4:00 am ET, which was its lowest level since May 2020. The euro-pound pair had ended yesterday's trading session at 0.8864. Further rally in the currency may challenge resistance around the 0.90 level.

The Credit Conditions Survey from the Bank of England showed that British households' demand for secured lending for house purchases is set to fall in the first quarter.

Although demand for secured lending for house purchase increased in the fourth quarter, it is set to drop slightly, the survey revealed.

The euro bounced off from a 2-day low of 1.0756 against the franc, with the pair worth 1.0783. At Wednesday's close, the pair was valued at 1.0767. The euro is likely to challenge resistance around the 1.10 mark.

The euro gained 0.4 percent against the loonie, approaching 1.5354. The euro was trading at 1.5290 against the loonie at yesterday's close. Next near term resistance for the euro is likely seen around the 1.56 level.

Having declined to a 1-week low of 1.5597 at 10:45 pm ET, the euro turned higher against the aussie, rising to 1.5660. The EUR/AUD pair had finished deals at 1.5622 on Wednesday. The euro may locate resistance near the 1.58 level.

Data from the Australian Bureau of Statistics showed that Australia's jobless rate dropped a seasonally adjusted 6.6 percent in December.

That was below expectations for 6.7 percent and down from 6.8 percent in November.

Following a 1-week fall to 1.6815 at 7:00 am ET, the euro recovered against the kiwi, with the pair trading at 1.6875. At yesterday's trading close, the pair was quoted at 1.6877. The euro is seen facing resistance around the 1.73 mark.

Eurozone flash consumer sentiment index for January is set for release at 10:00 am ET.

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