The euro has tumbled through the $ US1.09 level to strike a fresh 11.5-year low as the ECB nears the launch of its massive stimulus package and strong US jobs data raises the possibility of a US rate hike soon.
The single currency sank to $ US1.0845 as European markets closed on Friday – the lowest since September 2003 – after strong non-farm payrolls data increased expectations that the US Federal Reserve may move to begin hiking interest rates in the coming months.
But with the ECB to begin its 1.1-trillion-euro quantitative easing stimulus on Monday, most eurozone stock markets pushed higher.
Frankfurt’s benchmark DAX 30 index of top companies closed up 0.41 per cent to 11,550.97 points after reaching an intra-day record high of 11,600, while in Paris the CAC 40 rose 0.02 per cent to 4,964.35 points.
On the downside, London’s FTSE 100 index ended the day down 0.71 per cent to 6,911.80 points, having posted a record closing high on Thursday after the ECB announced its bond purchases will start next week.
The euro tanked against the US dollar after the US Labor Department said on Friday that the US economy pumped out a stronger-than-expected 295,000 net new jobs in February.
Analyst Craig Erlam said the good jobs numbers ‘will only feed into expectations for a rate hike from the Federal Reserve in June.’
‘The rally in the dollar immediately after the release clearly supports this view …,’ he added.
Higher interest rates will make the dollar attractive, while the ECB’s stimulus program will flood the economy with euros and weaken its value.
Some analysts predict the eurozone unit could reach parity against the dollar amid a growing policy divergence between the ECB and the Fed.
The Frankfurt-based central bank is battling deflation risks across the 19-nation eurozone, while its US counterpart exited its own QE program in October, and is mulling an interest rate hike later this year amid optimism over the American economy.
‘Diverging policy stances between the Fed and ECB look set to persist for some time, pushing the euro towards parity over the medium-term as the search for yield drives euro area investors to increase exposure to overseas assets,’ RIA Capital Markets analyst Nick Stamenkovic told AFP.
However, Rabobank analyst Jane Foley cautioned that the Fed was mindful of weak US inflation.
‘The ECB has indicated that it is prepared to throw the kitchen sink in with its attempts to beat deflationary risk and the resultant weakness of euro/dollar will undoubtedly help with the policy’s success.’
She added: ‘We do not think that the Fed will hike (rates) until December, based on weak inflation. Consequently we think that euro/dollar will avoid parity.’
But Wall Street stocks traded mostly lower Friday as investors bet on a quicker rate hike.
In late morning trading, the Dow Jones Industrial Average slumped one per cent to 17,954.20 points.
The broad-based SP 500 creeped up 0.12 per cent to 2,101.04, while the tech-rich Nasdaq Composite Index lost 0.74 per cent to 4,945.77.
Tech giant Apple traded one per cent higher after an early boost of 2.2 per cent on news it will join the prestigious blue-chip Dow index, replacing ATT. ATT was down 0.87 per cent as noon neared.
In European equities trading, Britain’s mining sector was hit particularly hard by sliding iron ore prices.
At the close Fresnillo sank 5.16 per cent to 698.50 pence, Randgold Resources dropped 5.27 per cent to 4,581 pence and Anglo American slid 2.45 per cent to 1,136 pence.
‘The FTSE 100 may have posted a new record close last night but (today’s) trade is being overshadowed by another drop in iron ore prices,’ said Trustnet Direct analyst Tony Cross.
‘Heavyweight mining stocks are languishing at the foot of the table as the price moved below $ US60 per tonne into territory where it is difficult to make any margin.’
Asian markets diverged Friday despite encouraging gains in New York.
Tokyo stocks soared 1.17 per cent thanks to a weaker yen and Seoul closed 0.73 per cent higher.
But Hong Kong shed 0.12 per cent and Shanghai slid 0.22 per cent, with investors subdued a day after China lowered its economics growth target for 2015.