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Euro Is Near 11-Year Low Before ECB; Franc Holds Historic Rally

The euro was within 1 percent of its weakest since November 2003 amid speculation the European Central Bank will announce additional stimulus measures when it meets Jan. 22.

The shared currency is down this month against all major counterparts after the Swiss National Bank’s unexpected decision to abandon the franc’s cap versus the euro spurred investor expectations the ECB will announce government bond purchases, also known as quantitative easing. The Swiss currency was little changed today after rallying last week versus every counterpart on earth. The dollar held an advance versus the yen after U.S. consumer confidence surged.

“Nothing could be clearer than the current economic and policy divide than between the U.S. and Europe,” David De Garis, a senior economist at National Australia Bank Ltd. in Melbourne, wrote in a note to clients. As the Federal Reserve “ponders rate lift-off and U.S. consumer sentiment hits its highest level for 11 years, the ECB last week has been putting together a QE plan that will get some sort of approval from Germany.”

The euro was little changed at $ 1.1562 as of 7:50 a.m. in Tokyo after reaching $ 1.1460 on Jan. 16. The 19-nation currency was at 99.54 Swiss centimes after plunging 17 percent last week. The dollar traded at 117.40 yen after jumping 1.2 percent on Jan. 16.

JPMorgan Chase & Co.’s index of global currency volatility rose to 11.68 percent at the end of last week, the highest since June 2013, up from last year’s low of 5.28 percent.

SNB Surprise

The SNB had capped its exchange rate at 1.20 francs per euro as an exodus from European assets during the region’s debt crisis in 2011 strengthened the Swiss currency and raised the prospect of deflation. As well as removing the measure, the SNB said it will push the interest rate on sight deposits to minus 0.75 percent from minus 0.25 percent.

The change came just one week before ECB policy makers meet to discuss introducing new stimulus, including quantitative easing, a move that may add to pressure on the franc against the euro. The Bank of Japan gathers on Jan. 21 to consider progress on its stimulus after it boosted an already unprecedented bond-buying program in October.

Spiegel magazine reported ECB President Mario Draghi briefed German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble on a plan for national central banks to buy sovereign bonds issued by their own country.

As the ECB looks to add stimulus, the U.S. Federal Reserve is moving toward raising interest rates for the first time since 2006. There’s a 64 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by December, futures data compiled by Bloomberg show. At the end of last year, wagers were focused on a September start.

The euro has tumbled 5.2 percent in the past month to lead declines among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 0.9 percent, the yen added 2.9 percent and the franc jumped 17 percent.

To contact the reporter on this story: Andrea Wong in New York at [email protected]

To contact the editors responsible for this story: Dave Liedtka at [email protected]; Kenneth Pringle at [email protected]; Paul Cox at [email protected] Naoto Hosoda

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