The euro on Friday gained against the US dollar for the second day after the European Central Bank (ECB) on Thursday exempted eurozone banks from a penalty charge, which analysts said would reduce the currency effects of new stimulus.

The central bank on Thursday cut its deposit rate to a record low minus-0.5 percent, from minus-0.4 percent, and said that it would restart bond purchases of 20 billion euros (US$22.3 billion) per month from November.

The purchases would run for as long as necessary and end shortly before it starts raising the key interest rates, it said.

Eurozone banks would be exempted from paying a penalty charge on idle cash worth six times their mandatory reserves, it added.

“Cutting the deposit rate and introducing ‘tiering’ at the same time was likely to have a mixed impact on the EUR and that seems to be one of the reasons why the weakness in EUR-USD on Thursday reversed abruptly,” BMO Capital Markets European head of foreign exchange strategy Stephen Gallo said in a report on Friday.

The single currency initially dropped on the new stimulus, testing more than two-year lows, before dramatically changing direction.

By exempting banks from the penalty charge, the central bank aims to minimize stress in financial institutions that have been harmed by years of low rates.

“Tiering aims to protect the credit transmission channel, but reduces the FX [foreign exchange] impact of lower interest rates,” Morgan Stanley analysts said in a report.

The euro was last up 0.20 percent at US$1.1083

The single currency fell as low as US$1.0925 immediately after the ECB’s announcement on Thursday.

Short-covering as the euro failed to break below that level, and hopes of de-escalation in a US-China trade war, also helped turn the euro around after the ECB decision.

US President Donald Trump on Thursday said that he preferred a comprehensive trade deal with China, but did not rule out the possibility of an interim pact, even as he added that an “easy” agreement would not be possible.

Data released on Friday showed that US retail sales last month increased more than expected, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.

That came after better-than-expected producer price inflation data on Wednesday and consumer price data on Thursday.

The improving indicators are unlikely to sway the US Federal Reserve from cutting interest rates when it meets next week.

The New Taiwan dollar on Thursday gained against the US dollar, rising NT$0.165 to close at NT$31.055, a 0.6 percent increase from a close of NT$31.257 on Sept. 6. Turnover totaled US$1.32 billion.

Taipei was closed for trading on Friday for the Mid-Autumn Festival holiday.

Additional reporting by staff writer