Filomena Scalise

New York - The euro strengthened against the dollar and yen on Wednesday as traders speculated that more economic stimulus is in the European Central Bank's pipeline to help quell eurozone financial turmoil.

The ECB held interest rates unchanged at a historic low 1.0 percent and said it would keep cash flowing to the single-currency bloc's embattled banks, at least through year-end.

The euro traded at $1.2580 around 21h00 GMT, firming from $1.2450 at the same time on Tuesday.

The yen meanwhile slipped. The euro rose against the Japanese currency, to 99.63 yen from 98.03 yen a day earlier. The dollar also gained, to 79.20 yen compared with 78.72 yen.

The beleaguered euro, which had hit nearly a two-year low last Friday amid rising eurozone crisis fears, found particular support from remarks by ECB head Mario Draghi.

Draghi said “not many” of the ECB policy panel members had wanted a rate cut this month and that Wednesday's decision was “taken by very broad consensus”.

But the fact that there were dissenters and the ECB's growth forecasts remained weak led to speculation that rates could be cut in their next meeting.

Kathy Lien at GFT said the ECB “paved the way for more easing in July”.

“Comments from Federal Reserve officials also suggest that the Fed is warming to the idea of introducing another round of quantitative easing,” or bond purchases to stimulate the economy, Lien said.

“More importantly however, the fact that the ECB stood pat today means there is a realistic possibility that the Fed could ease before the ECB,” she added.

The dollar weakened against the Swiss currency, to 0.9542 francs from 0.9645 late on Tuesday.

The greenback also lost ground against the British pound, which traded at $1.5492 compared with $1.5376 the prior day. - Sapa-AFP