The Dollar slid against the Euro on Thursday as tough inflation comments by a European Central Bank official and strong German business confidence data dashed hopes for a near-term interest rate cut in the euro zone. An improvement in investors' appetite for risk, following a sharp rebound in European stocks and gains in US equities, pushed down the Dollar versus high-yielding currencies such as the British pound and the Australian and Canadian dollars.
ECB governing council member Axel Weber said the Federal Reserve's surprise decision to cut its key overnight lending rate by 75bp to 3.50% on Tuesday had not shifted the ECB focus on euro zone inflation, dampening rising expectations that it too will have to cut rates soon.
On Thursday, EurUsd rose 0.98% at 1.4772. EurJpy rose 1.36% to 158.25. UsdJpy was up 0.41% at 107.19, after earlier slipping to 105.94 intraday low. UsdChf fell 0.32% to 1.0884. GbpUsd rose 1.08% at 1.9779, after hitting an intraday 1.9500 low. GbpJpy was up 1.47% to 211.97.
The euro was under selling pressure in recent weeks as signs emerged that weakness in the US economy was having a knock-on effect on the euro zone, fueling the argument for a rate cut by the ECB. Some of those concerns eased slightly on Thursday after the Ifo economic research institute reported that German corporate sentiment unexpectedly rose in January, bolstering policy-makers' assertion that the euro zone economy can withstand turmoil in financial markets. Euro zone rate futures, which were pricing in 75bp earlier this week, now price in about 40bp of easing this year. The ECB's benchmark rate is currently 4%.
The Australian dollar benefited from the improvement in risk appetite and a surge in the price of Gold by 2.33% at 913.65 an ounce. AudUsd rose 1.18% to 0.8829, while NzdUsd went up 0.48% to 0.7671. There was little reaction to a report showing that the pace of existing-home sales in the United States fell 2.2% in December to a slower-than-expected 4.89 Mio-unit annual rate.