European Stocks Rise as ECB Holds Rates

"If you take the overall stance of the USA administration, it's protectionist and still it's not clear what kind of dollar the president and the Treasury want", said Vassili Serebriakov, FX strategist at Credit Agricole in NY.

Such comments matter because a weaker dollar can help USA exporters by making their goods cheaper against foreign competition.

The single currency scaled $1.24 overnight for the first time in over three years, crowning a stellar rise over the past 2-1/2 months from $1.1608 in the first week of November. The higher euro can become a headache for Europe as it can hurt its exporters and weigh on inflation, which is already worryingly low.

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Investors remain sensitive to any indication from Draghi that the European Central Bank could hike interest rates during 2018. Rates these days are not set by governments but by global foreign exchange markets where major currencies are bought and sold.

One risk, however, is that other countries might retaliate by taking measures that lower their currency.

However, the euro has continued to make gains against the United States dollar as continued strength in eurozone domestic economic data has prompted speculation that the European Central Bank could adopt a more hawkish stance this year. After the apparently "hawkish" minutes of the December meeting, there had been some speculation that the forward guidance on the asset purchase program might be altered, noted Lloyds Bank in a research report. The market was also waiting in anticipation for Draghi to make his press conference later in the day and a part of the market was expecting him to talk down the euro as it felt that the European Central Bank would be uncomfortable with the quick and unfettered rise of the euro against the other currencies, especially the dollar.

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By virtually all metrics, the eurozone economy is in rude health. The eurozone is expected to have grown 2.4 percent previous year, while unemployment has fallen to 8.7 percent from a high of 12 percent in 2013.

But that progress was stopped later in the day as Trump sought to play down the speech by the USA treasury secretary by saying that the dollar was bound to get stronger due to the strong economic data.

The bank left its key short-term interest rate benchmark unchanged at a record low of zero.

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  • Kelly Blake