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19-Oct-17
09:48
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Euro hits $US1.11 in post-stimulus slide

The euro has fallen again against the US dollar, hitting a new 11-year low a day after the European Central Bank unveiled a vast bond-buying program to revive the eurozone.

The currency market is nervously awaiting the outcome of Greece’s election on Sunday, with polls showing the leftist anti-austerity Syriza party will win, posing a new challenge to the European Union and International Monetary Fund bailout program.

The euro, which fetched $ US1.1359 late on Thursday, tumbled to $ US1.1115, the lowest level since September 2003.

The Thursday announcement of a 1.14-trillion euro bond-buying program, or quantitative easing (QE), aims to stimulate growth and avert deflation after the nearly stagnant eurozone saw prices drop in December for the first time in five years.

ECB chief Mario Draghi said the program would continue at least through to September 2016.

Analysts said the euro could slide further toward dollar parity as the ECB announcement underscores a growing policy divergence with the US Federal Reserve, which exited its QE program in October and is considering an interest rate hike this year.

‘The key factor is that the ECB’s extension of QE is open-ended,’ said RIA Capital Markets analyst Nick Stamenkovic.

‘In other words, if euro area inflation fails to rise in coming months, then further purchases are likely as it attempts to restore price stability over the medium term.’

But with the Fed looking set mid-year to raise interest rates from near zero, where they have been pegged since late 2008, ‘the euro looks increasingly likely to reach (dollar) parity by year end, if not sooner,’ he said.

The Fed’s policy arm, the Federal Open Market Committee, meets on Tuesday and Wednesday.

Kathy Lien of BK Asset Management said that part of the dollar index’s more than 5 per cent gain since the beginning of the year reflected the positive outlook for the US economy, which is enjoying relatively strong growth compared with other major economies.

‘The main reason why the dollar is performing so well is because central banks around the world are in a race to ease,’ Lien said, citing the Bank of Canada’s quarter-point rate cut, the ECB’s QE and dovish minutes from the Bank of England monetary policy meeting.

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