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Euro flat after ECB keeps powder dry on interest rates

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The euro held steaqdy against the dollar on Thursday after the European Central Bank opted to keep interest rates unchanged on Thursday, despite speculation it might lower them in an attempt to quell disinflation.

The rate was held at the record-low of 0.25 percent, where it has stayed since November last year. The interest rate on the ECB's deposit facility also remained unchanged at zero percent.

Unlike in January and February, there are few voices in the market that had predicted action from the bank, either in the form of a cut in some of its official interest rates or other action to push more cash into the euro zone economy or its banks.

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A number of ECB policymakers have played down any concerns about low inflation, casting it as temporary, and President Mario Draghi's own line is that the euro zone is in no danger of falling into a debilitating cycle of deflation.

Why the ECB has to act… versus why it shouldn't

After gaining almost half a cent overnight, the dollar was flat against the euro under $1.38 in early European trade.

The main move of the past two weeks on major currency markets has been the dollar's steady march higher against the yen, awakening hopes that the greenback may finally be set to deliver on the break higher predicted by many banks in January.

The dollar has gained almost 3 percent against the yen since U.S. Federal Reserve chief told markets on March 19 that the Fed might raise interest rates next spring. It hit a new 10-week high overnight before retreating a touch but was still higher than a day earlier at 103.89 yen.

"There is a lot of resistance (to more dollar gains) around 104 yen and we may not break that today," said a dealer with one bank in London. "The key to any move higher will be non-farm payrolls tomorrow."

Low-flation

The head of the International Monetary Fund on Wednesday called on the ECB to ease policy, warning "low-flation" in advanced economies risked undercutting an already sluggish global recovery.

But U.S. data has generally improved after a dip in fortunes now put down largely to harsh winter weather. Worries over China and Ukraine that prompted investors to seek the relative security of the yen have also slipped at least momentarily off the agenda.

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