LONDON (Reuters) – The euro rose on Thursday after European Central Bank President Mario Draghi played down the possibility of the central bank implementing negative deposit rates.
This caused the dollar to cut earlier gains against the euro, though it hit a four-month high against the yen after U.S. Federal Reserve minutes suggested policymakers may be able to start scaling back stimulus soon.
Speaking in Berlin, the ECB’s Draghi said the possibility of negative deposit rates was discussed at the last policy meeting and there had been no news since then. He said the central bank did not see deflation materialising.
The comments were interpreted as differing from an unsourced report on Wednesday, which said the ECB may consider making banks pay to deposit cash with it overnight and caused the euro to fall. An ECB spokeswoman declined to comment.
The euro was up 0.2 percent at $1.3460, recovering from an earlier one-week low of $1.3399.
“The fact that Draghi is saying he’s not worried about deflation has pushed the euro higher,” said Chris Turner, head of currency strategy at ING.
“But I think the euro has overreacted to these comments and may pull back.”
Buoyed by the Fed minutes, the dollar rose to 100.93 yen, its highest since late July. It was last up 0.8 percent on the day at 100.80 yen.
The yen came under strong selling pressure after the Fed minutes, with market players expecting Japanese monetary policy to remain ultra-loose for some time to come.
“A lot of people would like to take dollar/yen higher, and that’s where the focus will be,” Nordea’s Christensen said.
He also said he expected any euro losses to be limited, keeping it within its recent $1.33-$1.36 range for now.
The euro rose 1 percent against the yen to 135.69 yen, coming close to a four-year peak of 135.95 yen.
Earlier weak French business activity data was offset by better-than-expected German business activity, although a weak reading for the euro zone as a whole continued to point to a fragile economic recovery.
Sterling hit a four-year high of 162.75 yen.
Elsewhere, the Australian dollar fell 0.8 percent to a two-month low of $0.9256 after Reserve Bank of Australia Governor Glenn Stevens said he was “open-minded” on intervention to push the currency lower.
(editing by Ron Askew)
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