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Dollar Gains On ECB Letdown

December 9, 2011

The dollar rallied versus most major currencies on Thursday, supported by its safe haven status after the European Central Bank said it will not be expanding its bond buying program.

Earlier in the week, comments by ECB President Mario Draghi were thought to foreshadowed further asset purchases on the condition that political leaders agree to a central fiscal authority and spending discipline.

With EU officials arriving in Brussels to discuss the issue, Draghi made clear that his comments were not meant as a promise of more quantitative easing.

Instead, the ECB lowered interest rates by a modest quarter percent to one percent, and unveiled added liquidity measures in support of the banking system.

For the first time ever, the ECB will conduct two longer-term refinancing operations with a maturity of 36 months and the option of early repayment after one year.

The move was not enough to please the markets, as stocks fell sharply around the world, raising risk aversion.

The dollar jumped to $1.33 versus the euro, up from $1.3450 in very early dealing. The dollar also gained on the sterling, improving to $1.5630 from near $1.58.

The Bank of England kept its key interest rate on hold at 0.5 percent this morning.

While the buck gained a penny to C$1.0220 versus its Canadian counterpart, and rebounded to Y77.75 from weekly lows against the yen.

 

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