Euro rally gets legs, ECB holds firm

The euro(CME:ECM14) strengthened to an eight-week high against the dollar as European Central Bank policy makers refrained from cutting their key interest rate at a monthly policy meeting.

The 18-nation currency approached the highest since October 2011 before ECB President Mario Draghi holds a press conference in Brussels to explain the decision. Australia’s dollar(CME:ADM14) rose to a three-week high after employers boosted payrolls and Chinese trade data improved. A gauge of the U.S. dollar fell to the lowest since October before Federal Reserve Chair Janet Yellen testifies for a second day to lawmakers. Norway’s krone rallied as manufacturing output climbed more than economists forecast.

“If there is no change in policy, people may see it as another excuse to buy the euro,” Jane Foley, a senior currency strategist at Rabobank International in London said before the decision. “Investors are viewing the euro as a glass half full. The ECB doesn’t have an awful lot of control of it at the moment,” she said.

The euro gained 0.3 percent to $1.3947 at 12:56 p.m. London time after appreciating to $1.3960, the strongest level since March 13. It reached $1.3967 that day, the most since October 2011. The 18-nation currency climbed 0.1 percent to 141.88 yen. The dollar fell 0.2 percent to 101.74 yen.

The ECB kept its benchmark interest rate at a record-low 0.25 percent as predicted by 56 of 58 economists surveyed by Bloomberg News. The other two had forecast a reduction. Draghi, who last month pledged to take additional action if a stronger currency keeps inflation depressed, will hold a media conference at 2:30 p.m. in Brussels. The central bank last cut its key rate in November.

‘Getting Impatient’

“Markets in general just don’t believe that Draghi is willing to follow through at this point and they’re getting impatient,” said Emma Lawson, senior currency strategist at National Australia Bank Ltd. in Sydney. “The currency market may be really wanting to call his bluff and if the ECB does nothing, which is what we expect, we may see a run up in euro- dollar close to $1.40.”

Europe’s shared currency has been supported by an improving economy and investor appetite for assets in the euro-region periphery. Yields on Spanish, Italian and Irish bonds fell to records yesterday amid optimism the debt crisis that threatened to splinter the currency bloc is abating.

The euro has gained 5.8 percent in the past 12 months, the third-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.9 percent and the yen weakened 3.9 percent.

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