ECB Set to Loosen Policy to Lift Sagging Economy

Reuters

Reuters

(Reuters)

The euro was under pressure in Asian trade on Thursday ahead of a European Central Bank meeting at which policymakers were expected to take further easing steps, while the kiwi skidded after the Reserve Bank of New Zealand surprised with an interest rate cut.

Continue Reading Below

The New Zealand dollar nursed losses after tumbling more than a cent after the RBNZ's decision early on Wednesday to cut its official cash rate by 25 basis points to 2.25 percent, citing a material decline in a range of inflation expectation measures. The central bank also signaled at least one more rate cut to come.

The New Zealand currency was last steady around a one-week low at $0.6655, after tumbling from the overnight high of $0.6809.

The ECB is expected to cut the deposit rate by 10 basis points to -0.40 percent, announce more asset purchases and possibly introduce tiered interest rates like the Bank of Japan in a bid to boost inflation, according to a Reuters poll published on Monday.

"This is probably not a consensus view, but the market is almost pricing in the entire kitchen sink from the ECB, and I think it's setting itself up for disappointment," said Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management in Portland, Oregon.

While tighter financial conditions a month ago may have warranted more drastic easing steps, some of those conditions have showed signs of improvement, she said, and therefore she expects only a further cut to interest rates into negative territory and a modest increase in purchases under the quantitative easing program.

Continue Reading Below

"The size of their response has to be directly related to stress in the market," Vail said, adding that the euro could get a bump higher after the policy meeting outcome.

The common currency was down 0.1 percent at $1.0986 and slipped about 0.2 percent against the yen to 124.39 .

The dollar was steady against its Japanese counterpart at 113.26 yen.

In other central bank action, the loonie got a lift from the Bank of Canada, which left policy rates unchanged on Wednesday and said its economic outlook was largely the same as in January as recent market volatility "appears to be abating."

While the Canadian currency has firmed since hitting a 12-year low of C$1.4474 in January, it is still significantly weaker than it was a year ago. The greenback was last down about 0.1 percent at C$1.3238.

(Reporting by Lisa Twaronite; Editing by Eric Meijer)