REUTERS – The euro traded higher against the U.S. dollar on Thursday after the European Central Bank unveiled a new and potentially unlimited bond-buying program to stem the euro zone debt crisis.
Investors have been anticipating the plan for weeks and the details European Central Bank President Mario Draghi announced at a news conference were largely in line with expectations.
Draghi gave few new details on the program, initially disappointing investors and leading the euro to fall sharply against the dollar. The unit later recovered as market participants saw Draghi as delivering on his July pledge to do whatever it takes to preserve the euro currency.
The plan is aimed at the secondary market to address bond market distortions and “unfounded” fears of investors about the survival of the euro.
“It was buy the rumor, sell the fact and we had both of those in the last two days and now the air has cleared,” said Tommy Molloy, chief dealer at FX Solutions in Ridgewood, New Jersey. Draghi “delivered exactly what was rumored and it was not a rumor, it was a fact. Now the euro is higher,” he added.
The euro was last changing hands up 0.2 percent at $1.2623, off the session low at $1.2559.
The single currency had climbed to $1.2650, its highest since early July after the ECB kept interest rates on hold, with its key rate unchanged at 0.75 percent. Some in the market had been bracing for an interest rate cut by the ECB to support flagging growth in the euro zone.
“Draghi’s over and we are digesting what he had to say,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “For the most part it was positive for the euro, but still short on some details.”
The ECB will also offer banks easier access to central bank loans by loosening its collateral standards for debt from countries getting bailouts or bond market support, Draghi said.
Investors discounted comments that the euro zone economy will probably contract more than previously expected this year, according to new European Central Bank staff forecasts, which also raised the bank’s outlook for 2012-13 inflation.
The euro could struggle to climb higher, analysts said, with a German Constitutional Court ruling on the euro zone bailout fund scheduled for September 12, meaning many investors would be wary of initiating large positions before then.
Germany’s Economy Minister Philipp Roesler said on Thursday the European Central Bank’s purchases of sovereign debt were not a permanent solution to the region’s problems and stressed that structural reforms needed to have priority.
SWISS FRANC FALLS
The euro earlier touched a 3-1/2-month high against the Swiss franc on the first anniversary of the Swiss National Bank’s decision to impose a floor on that pair and curb the Swiss currency’s gains.
The franc has fallen sharply against the euro in the past two sessions on market talk that the SNB has been buying euros to protect the 1.20 francs floor. The SNB has declined to comment on the speculation.
Against the Japanese yen, the dollar was last up 0.7 percent at 78.94 yen, with a session peak of 79.02 yen, after solid U.S. private payrolls and services reports.
U.S. private employers added 201,000 jobs in August, easily beating economists’ expectations, a report by a payrolls processor showed on Thursday.
The report comes a day before the closely watched U.S. non-farm payrolls in August.
The dollar broke above 79 yen to a two-week high after a report showed the pace of growth in the massive U.S. services sector rose in August on the back of a rebound in employment and exports.
Sterling was last trading up 0.2 percent at $1.5923, near a 3-1/2-month high, after the Bank of England kept interest rates steady and its quantitative easing program unchanged, as expected.