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Euro Drops to 11-Year Low on Greek Vote After QE; Aussie Falls

The euro fell to the lowest in more than 11 years versus the dollar on concern an anti-austerity party will take power in Greek elections, exacerbating the currency’s drop after the European Central Bank widened its stimulus program.

The shared currency headed for a sixth weekly decline before the Sunday vote. ECB President Mario Draghi said on Jan. 22 the institution would buy $ 60 billion euros ($ 68 billion) a month of debt. A gauge of the U.S. dollar was set for its biggest weekly gain since June 2013 on prospects the U.S. economy will outperform those of Europe and Japan as the Federal Reserve prepares to set policy on Jan. 28. Australia’s dollar declined to the lowest since 2009.

“Draghi has managed to squeeze out a really big reaction,” said Jane Foley, a senior strategist at Rabobank International in London, “Another interesting part of this is how other central banks are going to react.”

The Common Currency’s Existential Crisis

The euro fell 1.5 percent to $ 1.1198 at 8:36 a.m. New York time after touching $ 1.1115, the weakest since September 2003, after falling 2.1 percent on Thursday. The shared currency is set for a 3.2 percent weekly loss against the greenback.

The euro declined 1.7 percent to 133.34 yen. The dollar declined 0.3 percent to 118.09 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.6 percent to 1,162.53, having climbed 2 percent this week. It closed at 1,156.11 on Thursday, the highest since the index started in 2004.

Rate Cut

The Australian dollar dropped as traders see a 47 percent chance the central bank will cut rates at this year’s first policy meeting on Feb. 3, up from 25 percent odds on Jan. 16, according to overnight interest rate swaps.

The Aussie fell 1.6 percent to 78.97 U.S. cents, set for a 4 percent weekly slide. It earlier dropped to 78.81 cents, the lowest since July 2009. New Zealand’s dollar declined 0.8 percent to 74.47 U.S. cents, falling for a sixth day and to the least since November 2011.

Greek voters go to the polls on Jan. 25 in a general election that will decide whether Europe’s most-indebted country sticks to an austerity program that ensures its financial lifeline from creditors such as Germany. Alexis Tsipras, who leads the opposition Syriza group, has vowed to abandon the budget constraints that underpin the support while keeping Greece in the currency union.

Sell Euro

“The Greek election provides another reason to sell euro in case the ECB decision was not enough,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “A period of consolidation in the mid-$ 1.13 is reasonable today, but there is no reason to believe a low is in place.”

The euro slid against most of its 16 major peers a day after ECB President Mario Draghi told reporters in Frankfurt that the central bank will start buying from March until September 2016. The QE will compromise 45 billion euros in investment-grade government bonds, as well as the debt of public agencies and existing programs to buy asset-backed securities and covered bonds, a euro-area official said on Thursday.

“The bottom may not come into vision until we see a case for a persistent further slide in euro, with little technical support until nearer parity to the dollar,” Greg Gibbs, head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore, wrote in an emailed note. “The market sees a case for an early exit in ECB QE or higher policy rates, making a fall to record lows nearer 0.80 entirely possible,” he said referring to the euro-dollar exchange rate.

Dollar Underpinned

The Bank of Canada cut borrowing costs by a quarter of a percentage point on Wednesday, and the Danish central bank reduced its key interest rate for a second time this week the following day.

The dollar is the biggest gainer in the past week among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. It added 2.9 percent, the yen rose 2.3 percent and the euro was down 0.7 percent.

“The prospect of the Fed statement next week — which reiterates that the economy is recovering well and most likely they need to raise rates this year — definitely underpins the dollar,” Westpac’s Callow said.

To contact the reporter on this story: David Goodman in London at [email protected]

To contact the editors responsible for this story: Dave Liedtka at [email protected] Kenneth Pringle

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