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Euro Is 0.2% From 2-Year Low on ECB Bets; Yen Slides for 3rd Day

The euro was 0.2 percent from the lowest in more than two years against the dollar amid speculation the European Central Bank will expand stimulus measures as the Federal Reserve moves toward raising interest rates.

The single currency was set for weekly losses against most of its 16 major peers before German data forecast to show producer prices dropped. The yen fell for a third day toward a seven-year low against the dollar before Bank of Japan Governor Haruhiko Kuroda speaks today at the end of a two-day meeting. The Bloomberg Dollar Spot Index was near a five-year high. The Swiss franc slid the most in 18 months versus the euro yesterday after the Swiss National Bank introduced negative rates.

“The ECB is likely to take some kind of action in the first quarter and that will drag European yields lower,” said Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The euro looks to be the sole mover on speculation there may be something coming early in the year.”

The euro was little changed at $ 1.2277 as of 9:45 a.m. in Tokyo from yesterday, when it fell 0.5 percent. It dropped to as low as $ 1.2247 on Dec. 8, the weakest since August 2012. The shared currency traded at 146.04 yen from 146.01.

Japan’s currency was at 118.97 per dollar from 118.84, after depreciating 2.1 percent in the previous two sessions. The franc was little changed at 1.20416 per euro, after dropping as much as 0.7 percent to 1.20974 yesterday, the weakest since Oct. 10. The intraday decline was the most since May 2013.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,122.11. It reached 1,124.45 yesterday, the highest since March 2009.

Volatility Rises

JPMorgan Chase & Co.’s Global FX Volatility Index climbed to 10.12 percent, the highest since September 2013.

“Volatility for currency markets continues to rise,” Camilla Sutton, chief foreign-exchange strategist at Bank of Nova Scotia, said by phone from Toronto. “We’re seeing large flows pushing around the major currencies less on fundamentals and more on liquidity and risk aversion.”

German producer prices probably fell 0.2 percent in November from the previous month, according to the median estimate of economists surveyed by Bloomberg News before the data today. The ECB next meets on Jan. 22.

The SNB introduced a negative deposit rate for the first time since the 1970s yesterday, saying it was prepared to buy unlimited foreign currency to shield the 1.20-per-euro cap and take further measures if needed.

Russian Turmoil

SNB President Thomas Jordan cited turmoil in Russia as a “major contributory factor” to its rate decision.

The dollar was set for weekly gains against most major peers on speculation the Fed will be the first major central bank to lift borrowing costs.

Fed Chair Janet Yellen indicated this week after the central bank’s policy meeting that it was on course to raise interest rates next year even as the official statement said policy makers would be patient. The key rate has been held at zero to 0.25 percent since 2008.

Japan’s central bank, which on Oct. 31 boosted annual bond buying to a record 80 trillion yen ($ 673 billion), will conclude a two-day meeting today.

“I can’t think of any more yen-selling catalysts at the moment,” said Bank of Tokyo-Mitsubishi UFJ’s Nomoto. “The yen is weakening on the crosses in a risk-on trade, but the decline in oil will cap its depreciation. There likely are people who want to lock in profits if we see a retest of 120 per dollar into year-end.”

To contact the reporters on this story: Mariko Ishikawa in Tokyo at [email protected]; Kevin Buckland in Tokyo at [email protected]

To contact the editors responsible for this story: Garfield Reynolds at [email protected] Naoto Hosoda, Jonathan Annells

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