(Bloomberg) — The euro is set for the biggest quarterly slide versus the dollar since its inception and options trading indicates there’s more weakness to come.
In addition to a Federal Reserve that’s on track to raise interest rates, Europe’s 19-nation currency is being hobbled by the European Central Bank’s monetary stimulus and Greece’s struggle to secure bailout funds and avert a default. The euro slid on Tuesday even as a report showed Germany’s unemployment rate fell to a record.
The shared currency weakened against all but two of its 16 major peers this year as the ECB started its unprecedented 1.1 trillion-euro ($ 1.2 trillion) debt-purchase program. Across the Atlantic, output data may be understating the health of the American economy and employment numbers are a more reliable indicator, Fed Vice Chairman Stanley Fischer said at a conference on Monday.
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“The market is ignoring the improving fundamentals in the euro zone and focusing more on the policy divergence, with the expansion of the ECB’s balance sheet being an ongoing negative,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The Greek situation continues to cause consternation,”
The euro fell 1 percent to $ 1.0729 as of 10:58 a.m. in London, after sliding 0.5 percent on Monday and losing 11 percent this year. It shed 1 percent to 128.76 yen, pushing its drop since Dec. 31 to 11 percent, the most since September 2011.
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Joblessness in Germany, Europe’s largest economy, fell to 6.4 percent in March from 6.5 percent last month, according to a Tuesday report. That was the latest in a set of data signaling business and investor confidence is recovering in the euro area amid plunging energy prices and a weaker currency.
The recovery signs haven’t stopped options traders from becoming more bearish on the euro.
They’re paying a 2.29 percentage-point premium for three-month options to sell the euro against the dollar over contracts for purchases, the most since Feb. 23 based on closing prices. That’s up from a 2015 low of 1.19 percentage point reached on Jan. 12, 25-delta risk-reversal rates show.
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Greek Prime Minister Alexis Tsipras, who came to power in January on a platform of ending austerity, was locked in negotiations with creditors over the terms of the country’s 240 billion-euro bailout.
He sought consensus in parliament for his efforts after proposals to reform the nation’s finances failed to satisfy his European partners. The standoff has left Greece dependent upon ECB loans and at risk of an exit from the euro.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at [email protected]
To contact the editors responsible for this story: Paul Dobson at [email protected] Paul Armstrong
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