Euro Retreats As ECB Lagarde Dampens Rate Hike Hopes

The euro erased its early gains against its most major counterparts in the New York session on Thursday, after the European Central Bank President Christine Lagarde said that the central bank is unlikely to raise rates next year.

"Under the present circumstances... as I have said before, it is very unlikely that we will raise interest rates in the year 2022, that still stands," Lagarde said in a news conference.

The European Central Bank said that it will discontinue asset purchases under the pandemic emergency purchase programme at the end of March, but will expand its asset purchase programme temporarily to maintain an accommodative stance of monetary policy.

The Governing Council will conduct net asset purchases under the PEPP at a lower pace in the first quarter of 2022 and end the scheme at the end of March, the ECB said in a statement.

The Governing Council decided to extend the reinvestment horizon for the PEPP to until at least the end of 2024.

Policymakers also decided a monthly net purchase pace of EUR 40 billion in the second quarter and EUR 30 billion in the third quarter under the asset purchase programme.

From October 2022 onwards, the Governing Council will maintain net asset purchases under the APP at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of its policy rates, the bank said.

The ECB said that it expects net purchases to end shortly before it starts raising the key interest rates.

The bank left its key interest rates unchanged as expected. The main refinancing rate thus remains at zero, the deposit rate at -0.50 percent and the marginal lending rate at 0.25 percent.

Flash survey results from IHS Markit showed that Eurozone private sector growth eased to a nine-month low at the end of the year as rising coronavirus infection rates hit service sector activity, offsetting improved manufacturing growth.

The flash composite output index came in at 53.4 in December, down from 55.4 in November. The reading was also below the expected level of 54.0. Nonetheless, a score above 50.0 indicates expansion.

The euro pulled back to 1.0426 against the franc, after rising to 1.0467 at 7:45 am ET, its highest level since November 26. The euro is seen finding support around the 1.02 mark.

The Swiss National Bank maintained its expansionary monetary policy, as widely expected.

Policymakers of the central bank decided to retain the policy rate and interest on sight deposits at the SNB at -0.75 percent.

After rising to near a 4-week high of 129.64 at 8:45 am ET, the euro eased off to 128.53 against the yen. The pair was worth 128.72 when it ended deals on Wednesday. Next key support for the euro is likely seen around the 123.5 level.

Data from the Ministry of Finance showed that Japan posted a merchandise trade deficit of 954.8 billion yen in November.

That was way short of forecasts for a shortfall of 675 billion yen following the downwardly revised 68.5 billion yen deficit in October (originally a 67.4 billion yen deficit).

The euro was trading at 1.1299 against the greenback, down from more than a 2-week high of 1.1360 seen at 9 am ET. The pair had closed Wednesday's deals at 1.1287. The euro is seen locating support around the 1.10 mark.

The euro held steady against the pound, after falling to more than a 2-week low of 0.8454 at 7:15 am ET. The euro-pound pair had finished yesterday's trading session at 0.8509.

The Bank of England lifted its key interest rate to control a surge in inflation.

The committee unanimously decided to maintain the bond purchase programme at GBP 895 billion.