The euro is resisting the European Central Bank's (ECB) all-out assault on the specter of deflation, surprising the market with its continued rise, and some analysts believe it won't weaken anytime soon.
"A lot of people are scratching their heads" over the euro's climb, said Emma Lawson, senior currency strategist at National Australia Bank.
"There's a lot of skepticism that these measures won't be effective or are not enough," she said. "It's not a supply of funding [damping the euro zone economy]. Demand in Europe is very weak."
The euro initially dropped as low as $1.3505, its lowest since February, after the ECB took the unprecedented step Thursday of imposing a negative interest rate on banks for their deposits in addition to cutting its main interest rate from 0.25 percent to 0.15 percent. But it quickly recovered and rose above pre-announcement levels, fetching $1.3661 in early Asian trade Friday.
"The last thing the ECB needs right now is a stronger euro because that may well push the Eurozone over the edge in terms of that deflationary trap," said Jonathan Pain, writer of the Pain Report, noting the region's inflation rate fell to 0.5 percent last month, well below the ECB target of around 2 percent.