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Euro Slides to Weakest Since 2006 on ECB, Greece

The euro fell to the weakest level in almost nine years versus the dollar amid speculation the European Central Bank is moving closer to large-scale sovereign-bond purchases.

The shared currency slid as much as 1.2 percent today after President Mario Draghi last week gave his clearest signal the ECB will start quantitative easing. The euro also weakened as Greece began an election campaign that Prime Minister Antonis Samaras said will determine the country’s euro membership. A dollar gauge headed for its highest close in almost six years as the Federal Reserve moves toward raising interest rates. New Zealand’s dollar and Norway’s krone fell as commodities dropped.

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“It’s very hard to imagine something that can convince the market that the euro is not a selling opportunity at this juncture,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “The market continues to speculate that the ECB will start QE this month. Clearly the election in Greece probably complicates the agenda for Draghi.”

The euro dropped 0.4 percent to $ 1.1959 as of 8:56 a.m. London time after sliding to $ 1.1864, the least since March 2006. The shared currency fell 0.5 percent to 143.92 yen after declining to 143.16, the lowest since Nov. 11. The dollar depreciated 0.2 percent to 120.32 yen.

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Draghi said policy makers were ready to act if needed to counter deflation, in an interview with German newspaper Handelsblatt published Jan. 2. The ECB next meets Jan. 22.

‘Price Stability’

“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said. “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary.”

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The euro has fallen 0.4 percent in the past week, the third worst performer of 10-developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.3 percent and the yen rose 1.6 percent.

Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the 19-member euro region. Syriza leader Alexis Tsipras said his party would end German-led austerity if it wins the Jan. 25 vote. German Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, Der Spiegel magazine reported.

The Bloomberg Dollar Spot Index (BCOM), which tracks the U.S. currency against 10 major peers, rose for a second day. The gauge climbed 0.2 percent to 1,142.89, set for the highest close since March 9, 2009.

‘Nailed Down’

“The euro remained firmly out of favor as markets bank on details of upcoming ECB quantitative easing being nailed down as soon as Jan. 22,” Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a note to clients. The dollar is poised to extend gains as “roadblocks are expected to be few and far between on a journey towards a higher Fed Funds rate,” she said.

The yen rose to an eight-week high against the euro as a slide in Asian stocks boosted demand for haven assets.

“There are concerns for risk-off trades” and that is driving the yen higher, said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. Germany is starting to suggest that Greece may leave the euro, and “those sort of uncertainties are behind the trades,” he said.

The kiwi fell 0.6 percent to 76.57 U.S. cents and the krone weakened 0.5 percent to 7.6292 per dollar. Oil declined for a third day after the Bloomberg Commodity Index slumped 17 percent last year, the worst performance since 2008.

JPMorgan Chase & Co.’s Global FX Volatility Index climbed to the highest since September 2013. The gauge rose 10 basis points to 10.14 percent after climbing to 10.27 percent. It has increased from a record-low 5.28 percent set in July.

South Korea’s won dropped for a third day as BNP Paribas SA said disinflationary pressures were keeping alive the possibility the Bank of Korea will cut interest rates in the first quarter.

The won depreciated 0.6 percent to close at 1,109.69 per dollar in Seoul and touched 1,111.70, the weakest level since Dec. 9.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at [email protected]; Kevin Buckland in Tokyo at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Keith Jenkins, Nicholas Reynolds

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