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FOREX-Euro sinks to nine-year low, undermined by bets on ECB QE

(Updates with fresh lows, details and comments)

* Euro sell-off gathers pace, option barriers at $ 1.1750

* Euro eyes $ 1.1747, the level where trading began in 1999

* Deflationary risk in euro zone argues for ECB action

* Fed minutes offer no new clues on rate hike timing

By Anirban Nag

LONDON, Jan 8 (Reuters) – The euro extended losses into a fifth day on Thursday, reaching a nine-year low, as investors ramped up bets the European Central Bank was getting closer to adopting quantitative easing to ward off deflation.

A slump in German industrial orders in November and a drop in euro zone consumer inflation expectations reinforced bearish views of the single currency. So did concern that a Greek general election on Jan 25 would lead to a stand-off between Berlin and Athens over the austerity imposed on Greece.

The euro fell to $ 1.17625, its lowest since December 2005 and close to $ 1.1747, the level at which it first traded, on Jan 4, 1999.

Traders cited option barriers at $ 1.1750.

“In the run-up to the ECB meeting on Jan. 22 we expect more euro short positions to be put in place. So while the euro has fallen, we think there is further room, given expectations that QE may be announced at that meeting,” said Yujiro Goto, a currency strategist at Nomura, London.

Data on Wednesday showed consumer prices in the euro zone fell in December from a year earlier, marking the first annual decline since 2009. That cemented expectations the ECB will open a bond-buying program at its policy meeting on Jan. 22.

In contrast, the Federal Reserve is still expected to raise interest rates, although the timing remains unclear. Minutes of the December meeting offered no new clues, although most expect the Fed to act around mid-year.

“The Fed hinted that in its view the financial markets have not been pricing enough tightening, meaning that risks are balanced towards a hawkish surprise,” said Petr Krpata, currency strategist at ING. “All in all, the Fed bias is clearly dollar- supportive.”

The dollar climbed to 119.80 yen, pulling away from a three-week trough of 118.36 reached on Tuesday. Weakness in the euro kept the dollar index at nine-year highs. It hit a peak of 92.458 in European trade.

The dollar moved higher after a better-than-expected U.S. jobs report from ADP on Wednesday, which bolstered expectations of a good non-farm payrolls report on Friday. Forecasts are the economy added 240,000 jobs in December.

“Any number above 200,000 should keep the broad dollar strength trend in place,” said Nomura’s Goto.

(Editing by Larry King)

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