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Draghi's comments lift the euro

Tuesday, April 29 12:42:53

The euro inched up against the dollar today, helped by comments from European Central Bank policymakers cooling any expectations that the bank will respond to low inflation by easing monetary conditions further.

Sterling pulled back from a four and a half year high against the dollar after the first estimate of gross domestic product showed growth improving slightly but less than most economists had expected.

The euro has struggled to push past a series of technical barriers since a first approach last month to the big psychological figure of $1.40 prompted warnings from the ECB about the currency's strength.

But short-term euro zone interest rates continue to push higher, boosting returns on the currency, and a source on Monday said ECB President Mario Draghi had told German lawmakers outright money-printing by the bank was still a long way off.

Preliminary German numbers later on Tuesday are also expected to show inflation inching back up, easing pressure on the bank to take action to fend off the risk of a cycle of falling prices and demand.

"Draghi's comments are one of the reasons the euro is holding strong this morning," said Stephen Gallo, a strategist with Canadian bank BMO in London.

"I think the market is coming to the realisation that they are quite relaxed about the threat of disinflation. There are a lot of temporary factors behind the fall in inflation."

Like many dealers and analysts, however, he underlined the lack of appetite to test the ECB's resolve to take action against a stronger euro and any resulting drop.

The common currency rose around 0.1 percent to $1.3860 . It also rose 0.3 percent to 142.37 yen, well above a one-week low of 140.99 yen seen on Monday.

Moves among major currencies were muted in Asia, as a public holiday in Japan dampened trading activity.

"The euro seems to have gained a foothold around $1.3860, but I'm not sure there is the appetite in the market to take it higher," said a dealer with one U.S.-based bank in London.