The euro fell broadly on Thursday and could extend losses after European Central Bank President Jean-Claude Trichet threw cold water on expectations euro zone interest rates would rise any time soon. Trichet, speaking after the ECB's decision to keep interest rates at a record low 1 percent, said inflation expectations remain "firmly anchored" and inflationary pressures over the medium to long term "should remain contained." His comments disappointed investors who had expected a more hawkish statement after recent inflation data came in above forecast. Expectations the ECB would lift interest rates sooner than the Federal Reserve boosted the euro in recent weeks. The euro fell more than 2 cents on the day, moving further away from a 12-week high of $1.3862 set on Wednesday. It was last down more than 1 percent
[EUR=X 1.3622 
-0.0015 (-0.11%) 
] . Traders said support now lies at $1.3570, this week's low, and a break would open the door for a slide below $1.35. "Trichet failed to deliver on expectations for a hawkish statement," said Richard Franulovich, senior currency strategist at Westpac in New York. "He merely repeated what he said in January, which is that inflation risks are balanced but could move to the upside. The markets were clearly looking for something more aggressive than that." Interest rate futures imply an 80 percent chance of a 25 basis point rate increase by August. Before the meeting, the market was fully pricing in a rate hike by then.The spread between German and U.S. two-year bond yields narrowed to 69 basis points from around 75 basis points. "The market has rightly interpreted Trichet's comments as a sign that the prospect of a near-term rate hike is still premature," said Frederik Ducrozet, an analyst at Credit Agricole in a note. "That said, it is very likely, in our opinion, that the ECB staff of economists will revise GDP and inflation projections upwards next month based on recent data and oil price dynamics."
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