FOREX-Euro slips vs dollar after ECB; yen broadly higher

* ECB raises interest rates as expected by 0.25 pct point

* Euro off 14-month high vs dollar, 11-month peak vs yen

* New Japan quake pushes yen to session peak vs dollar
(Updates prices, adds byline)

By Wanfeng Zhou

NEW YORK, April 7 (Reuters) – The euro fell from a 14-month
high against the dollar on Thursday after the head of the
European Central Bank dampened market expectations for
aggressive interest rate hikes, though any pullback was
expected to be limited.

The euro also dropped against the yen, which rallied across
the board after a new Japanese earthquake with a magnitude of
7.4 prompted investors to close trades in riskier investments
funded by cheaply borrowed yen. For more see [ID:nL3E7F72Y2].

The ECB raised rates by 25 basis points, its first hike
since the 2008 financial crisis, to battle rising inflationary
pressures. ECB chief Jean-Claude Trichet signaled the bank was
ready to tighten policy further if needed but added that the
ECB had not decided if Thursday’s move was the first in a
series. [ID:nLDE7351QH]

“His tone is decidedly neutral right now. He’s keeping
things very close to his vest,” said Boris Schlossberg,
director of research at GFT in New York, referring to Trichet’s
comments. “The euro trade has been so focused on interest rate
differentials, so some of the fast money might come out of the

The euro was last down 0.3 percent at $1.4292 (EUR=: Quote, Profile, Research), off a
more than 14-month high of $1.4350 touched on Wednesday.
Options traders noted demand for short-term upside strikes in
the $1.4400 region, as market players looked to protect against
a further rise in the euro.

Some analysts said the euro could fall as low as $1.4200,
though losses should be limited to $1.40, given uncertainty
over the outlook for U.S. monetary policy.

The euro zone single currency has risen more than 3 percent
since March 3, when Trichet strongly hinted at a rate hike in
April, earlier than markets had then been expecting.

Trade ideas for ECB decision, click [ID:nLDE7351YJ]

ECB in graphics:

The euro zone’s debt struggle:

Investors also were cautious about the euro zone’s debt
crisis after Portugal asked for a bailout from the European
Union, with the size of the package expected to be up to 80
billion euros ($114 billion). [ID:nLDE7350HL] But fears of
contagion to Spain eased somewhat after Madrid comfortably sold
4.1 billion euros of a new three-year bond.


Against the yen, the dollar fell to a session low of 84.57
yen (JPY=: Quote, Profile, Research) after news of the latest earthquake in Japan. It was
last at 84.88 yen, down 0.7 percent. Stop-loss orders were
triggered below 84.70.

“This could cause some risk aversion to sneak back into the
market, but given how other currencies have been screaming
higher against the yen since mid-March, the scope for
profit-taking was always there around these levels,” said David
Watt, senior currency strategist at RBC Capital Markets.

No damage was detected at the quake-shattered Fukushima
Daiichi nuclear plant, operator Tokyo Electric Power Co
(9501.T: Quote, Profile, Research) said. A tsunami warning was also lifted.

The Bank of Japan kept monetary policy steady as expected
and signaled its readiness to ease policy further, bucking a
global trend of central banks withdrawing excess liquidity put
in place during the financial crisis. [ID:nL3E7F70JG]

The euro fell more than 1 percent against the yen
(EURJPY=: Quote, Profile, Research), hitting the day’s low around 120.74 yen, with
traders citing real money selling of euros. It was last at
121.32 yen.

Sterling (GBP=D4: Quote, Profile, Research) slipped against the dollar after the Bank
of England kept rates unchanged, as expected.
(Additional reporting by Nick Olivari and Steven C Johnson;
Editing by James Dalgleish)

FOREX-Euro slips vs dollar after ECB; yen broadly higher