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Euro gains as ECB disappoints, sterling slips on Brexit fears

NEW YORK (Reuters) – The euro jumped on Thursday after the European Central Bank disappointed some investors looking for a larger stimulus boost, while sterling fell after post-Brexit trade talks were extended to the weekend in hope of an elusive breakthrough.

FILE PHOTO: British Pound Sterling and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.

But it “left the gun powder dry and no bazooka was fired. This has made investors bullish on the euro as the expectations were that the ECB is worried about the economic recovery,” said Naeem Aslam, chief market analyst at Ava Trade.

The ECB also said that it is monitoring the euro’s exchange rate with regards to its possible implications for the medium-term inflation outlook, after it last week hit a two-and-a-half year high against the greenback.

Analysts and market participants are watching to see if global central banks indicate they may act to stem the relative strength of their currencies as the greenback tumbles.

“It’s the second major central bank to casually note exchange rate developments recently, underscoring the sliding USD,” said Mark McCormick, global head of FX strategy at TD Securities. “We don’t think there is too much the ECB can do to reverse market trends, though they can take some steam off the top.”

The Bank of Canada on Wednesday attributed strength in the Canadian dollar to U.S. dollar’s broad-based decline.

The euro was last up 0.60% on the day at $1.2154.

The dollar also weakened after data on Thursday showed that the number of Americans filing first-time claims for unemployment benefits increased more than expected last week as mounting new COVID-19 infections caused more business restrictions.

Sterling slipped as market participants became more cautious about the risk of a no-deal Brexit.

The European Commission and Britain remained “far apart” on a Brexit trade deal, the bloc’s chief executive said on Wednesday night after what she described as a “lively” dinner with UK Prime Minister Boris Johnson.

Bank of England Governor Andrew Bailey has said a no-deal Brexit would cause more lasting damage to Britain’s economy than the COVID-19 pandemic.

Sterling was last down 0.65% at $1.3315.

The British currency is struggling to get above technical resistance at the $1.35 area, and this is the third time it has failed at this level since December 2019, said Tom Fitzpatrick, global head of CitiFX Technicals.

The Australian dollar hit a two-and-a-half year high on growing optimism that global growth will improve, and that the Reserve Bank of Australia is unlikely to further loosen policy after cutting rates to a historic low of 0.1% in November.

“China’s economy showing mounting signs of strength, that is boding better for a global recovery and I think that’s leading the market to unwind expectations of looser policy from down under,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The Aussie gained 1.03% to $0.7518.

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