Euro Collapse No Longer a Major Concern for US Companies – Analyst Blog

The European Central Bank (ECB), in its bid to boost the Eurozone’s flagging economy, began its quantitative easing (QE) on Monday. The QE is guiding the long-term bond yields in the region to near zero, while the central bank continues buying the government debt using the newly-printed euros. This should be flooding the markets with euro.

Last Friday, the ECB announced its 1 trillion euro ($ 1.1 trillion) bond-buying program. Since then, and particularly from Monday with the commencement of the QE plan, weakness in the euro grew. The US dollar achieved a 12-year high and has gained over 31% against the euro over the last 12 months.

Dollar-Euro Parity

There are calls now for a one-to-one exchange rate between the currencies, or in simple terms – dollar-euro parity might be in the cards. The parity existed when the euro was introduced, and it happened again in Nov 2002.

Changing money supplies and the contrasting central bank policies between the two regions have been fueling the chances of the parity. Moreover, there are heightened chances of the US Fed raising interest rates and cutting down the money supply. This will further make dollar-denominated assets more valuable.

What Role Does the Dollar Play Now?

Meanwhile, the Dow crashed about 332 points on Tuesday. Data from Wunderlich suggested the S&P 500 has dropped in 19 of the 27 occasions when the dollar strengthened. The Fed’s sooner-than-expected rate hike fears have also been dragging US equities down. So a strengthening dollar cannot be solely blamed for a dip in equities.

The latest slump in the domestic stock markets should not deter the mood altogether. Though there are adverse effects of a stronger dollar, there are positives too. The plunge in the euro — or let’s say the gain in the dollar — bodes well for a lot businesses in the US.

While it does offer Americans a great opportunity to travel to the other side of the pond at a lower cost, a major benefit of a stronger dollar scenario is that it slashes import prices. Moreover, a stronger dollar is said to be beneficial over the long term in drawing more capital to the country.

Speaking of imports, the US is the second largest importer in the world. According to the United States Census Bureau’s numbers for trade in goods with European Union, January imports from the European Union were at $ 31,588.8 million, as against exports of $ 22,265.7 million. Imports had also outpaced exports in 2014, as for imports of $ 417,836.7 million, exports totaled $ 276,698.4.

Separately, US heavily imports vehicle, machines, engines, pumps, pharmaceuticals, aircraft, spacecraft and alcoholic beverage from Germany and France. So these related companies should also be cheering the devaluation of the euro.

On the other hand, the stronger dollar negatively affects exporters. US firms lose out on the competitive space, as US products become more expensive for consumers in foreign lands — Europe, in this instance.

Also, euro-denominated earnings take a plunge. Price adjustments cannot be made straightaway. They need to incur the currency headwinds that affects revenues and profits in U.S. dollar terms.

However, certain US firms this time can move beyond the import advantage as they have a new strategy – “Reverse Yankees” – to offset pressures from the weaker euro.

Reverse Yankees: The Smart Bet by US Firms

Per this strategy, US companies have been increasingly offering euro-denominated bonds. According to Dealogic, euro-denominated issuance by US firms exceeded 33 billion euros in 2015. This is three times higher than the year-ago period’s number. The borrowing cost in euros is at an historic low. It is cheap relatively to dollar funding. Thus, some multinationals are taking advantage of this master strategy.

The Coca-Cola Company KO offered the largest amount ever by a U.S. firm in euro-bonds. In late February, Coca-Cola offered 8.5 billion euros worth of euro-denominated bonds. Very recently, Kinder Morgan, Inc. KMI also priced 1.25 billion euros of euro-denominated bonds. This is the company’s first issuance of bond offering in euros. It is a smart move by the company to enter the European market at a time of record low borrowing costs and a favorable currency exchange rate.

AT&T, Inc. T, The Priceline Group Inc. PCLN and even Warren Buffett’s Berkshire Hathaway Inc. BRK.A have jumped in to reap benefits of the demand and high prices for euro-denominated bonds. Apple Inc. AAPL was pretty fast in noticing the trend and had debuted after issuing 2.8 billion euros of bonds in Nov 2014. The iPhone maker was taking advantage of a market offering the lowest yields in over half a decade as compared to dollar-denominated debt.

Reportedly, US firms are selling euro bonds that offer about 1.5%-1.75% lower yields than equivalent bonds issued in the US. Apart from the lower borrowing cost advantage, the strategy also offers a hedge against currency devaluation risk.

For firms anticipating further strength in the dollar, and thus a weaker euro, paying off the bonds will be cheaper. If the euro improves, these firms may bank on their revenue stream in euros. The firms may lock the current exchange rates by borrowing in euros. They may later on pay off the bonds with their euro revenues.

Conclusion

A strong currency in general may often be seen as a short-term negative, particularly for the exporters. However, importers will always gain and this makes more sense for the US, which is the second biggest importer. The currency-hedging action and the “Reverse Yankees” trend now offer great protection to US firms.

Moreover, expanding in Eurozone through mergers and acquisitions will be cheaper now. In order to utilize this advantage, US healthcare companies have been busy of late in buying European companies.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AT&T INC (T): Free Stock Analysis Report
 
PRICELINE.COM (PCLN): Free Stock Analysis Report
 
APPLE INC (AAPL): Free Stock Analysis Report
 
COCA COLA CO (KO): Free Stock Analysis Report
 
KINDER MORGAN (KMI): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Euro sells off to record low; dollar hits high

The euro fell on Thursday below $ 1.10 for the first time since 2003 and the U.S. dollar added to gains against an index of currencies after the European Central Bank said it will next week launch a massive bond-buying program meant to boost economic growth.

The euro zone common currency, which has lost about 15 percent against the dollar in six months, briefly traded under $ 1.10 for the first time since September 2003 and hit a session low of $ 1.0988.

It is also on track for a third consecutive weekly loss against the greenback. The euro is also on track for its ninth consecutive monthly loss against the dollar, which has never happened before. February also marked the eighth loss in a row for the euro. Before then, the longest monthly losing streak for the euro vs the dollar was seven months, according to FactSet.

It was last off near 0.50 percent at $ 1.10265 in selling that accelerated after a news conference by ECB chief Mario Draghi.

Draghi spoke after the ECB, in its battle against euro zone economic sluggishness and low inflation, pushed up its 2015 and 2016 growth forecasts and fixed a March 9 start date for bond purchases of 60 billion euros a month.

Read MoreWeak euro boosts euro zone businesses

Analysts have suggested the ECB would distort the bond market by buying bonds with negative yields. Draghi said it would only steer clear of bonds yielding less than the ECB’s -0.2 percent deposit rate.

“Some people are interpreting some of the comments by Mario Draghi as very dovish for the euro,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie in New York. “That’s why we broke through some stops and got down to about 1.10.”

Dollar revs up for jobs data, euro bonds rally on ECB

By Marc Jones

LONDON (Reuters) – The dollar hit a new 11-year high against major currencies on Friday as investors bet the monthly U.S. jobs report would add to the chance of rate hikes, even as the European Central Bank embarks on a 1 trillion euro campaign of bond-buying.

The euro broke below $ 1.0980 for the first time since September 2003 as it continued its steady march lower. [FRX/]

The same balance of risks saw the gap between German and U.S. bond yields stretched to its widest in more than a quarter of a century as government bond yields across the 19-country euro zone took another step lower. [GVD/EUR]

Equity investors were playing it safe, however, ahead of the U.S. jobs data.

Europe’s benchmark FTSEurofirst 300 <.FTEU3> was barely changed in early trading after Thursday’s news that the ECB will start its long-awaited QE program on Monday had seen it hit a seven-year high.[.EU]

Analysts polled by Reuters expect U.S. payrolls due later to have increased 240,000 last month and the jobless rate to have ticked down to 5.6 percent from 5.7 percent.

Although that would be a slight slowdown in the headline trend it would mark the 12th straight month of job increases above 200,000, the longest such run since 1994.

Philip Marey, a U.S.-focused strategist at Rabobank, said the Fed is happy with the labor market in terms of interest rate hikes, but slack prices were a concern.

“It is the (low) inflation picture that will deter them from pulling the trigger on interest rates early,” he said.

Against a basket of major currencies the dollar <.DXY> was at the new 11-year year highs, but dealers saw little prospect of significant further moves before the payroll numbers at 0730 ET.

The recent run of U.S. economic news has been mixed at best, leading analysts to steadily downgrade forecasts for growth this quarter. A strong jobs report could offset that and give the Fed reason to stick to its tightening timetable at the next policy meeting on March 17-18.

In contrast, the picture in Europe has been steadily improving.

Data on Friday showed German industrial output rose more than expected in January, notching up its fifth straight monthly increase, while it also climbed 0.4 percent year-on-year in Spain.

“The positive result in January and the upward revision of the data from the previous months underline that the recovery of the German economy is continuing,” its economy ministry said.

(Additional reporting by Wayne Cole in Sydney Editing by Jeremy Gaunt)

GLOBAL MARKETS-Dollar revs up for jobs data, euro bonds rally on ECB

* European, Asian shares mostly cautious before U.S. jobs test

* Report, and especially wages, key for Fed outlook

* Fed’s Williams says should consider hiking from mid-year

* Euro loses out to dollar as yield gulf widens

By Marc Jones

LONDON, March 6 (Reuters) – The dollar hit a new 11-year high against major currencies on Friday as investors bet the monthly U.S. jobs report would add to the chance of rate hikes, even as the European Central Bank embarks on a 1 trillion euro campaign of bond-buying.

The euro broke below $ 1.0980 for the first time since September 2003 as it continued its steady march lower.

The same balance of risks saw the gap between German and U.S. bond yields stretched to its widest in more than a quarter of a century as government bond yields across the 19-country euro zone took another step lower.

Equity investors were playing it safe, however, ahead of the U.S. jobs data.

Europe’s benchmark FTSEurofirst 300 was barely changed in early trading after Thursday’s news that the ECB will start its long-awaited QE programme on Monday had seen it hit a seven-year high.

Analysts polled by Reuters expect U.S. payrolls due later to have increased 240,000 last month and the jobless rate to have ticked down to 5.6 percent from 5.7 percent.

Although that would be a slight slowdown in the headline trend it would mark the 12th straight month of job increases above 200,000, the longest such run since 1994.

Philip Marey, a U.S.-focused strategist at Rabobank, said the Fed is happy with the labour market in terms of interest rate hikes, but slack prices were a concern.

“It is the (low) inflation picture that will deter them from pulling the trigger on interest rates early,” he said.

Against a basket of major currencies the dollar was at the new 11-year year highs, but dealers saw little prospect of significant further moves before the payroll numbers at 1230 GMT.

The recent run of U.S. economic news has been mixed at best, leading analysts to steadily downgrade forecasts for growth this quarter. A strong jobs report could offset that and give the Fed reason to stick to its tightening timetable at the next policy meeting on March 17-18.

In contrast, the picture in Europe has been steadily improving.

Data on Friday showed German industrial output rose more than expected in January, notching up its fifth straight monthly increase, while it also climbed 0.4 percent year-on-year in Spain.

“The positive result in January and the upward revision of the data from the previous months underline that the recovery of the German economy is continuing,” its economy ministry said.

(Additional reporting by Wayne Cole in Sydney Editing by Jeremy Gaunt)

Currencies: Euro hits fresh 11-year low as Draghi unveils plan for QE

NEW YORK (MarketWatch) — The euro fell to a fresh 11-year low Thursday after European Central Bank President Mario Draghi said the central bank wouldn’t buy bonds with yields lower than the central bank’s deposit rate of negative 0.2%.

The euro EURUSD, -0.72%  traded as low as $ 1.1005 Thursday, its lowest level since September 2003 and it EURGBP, -0.44%  also hit a multiyear low against the pound of 72.23 pence, its lowest level since December 2007.

On Wednesday evening, the shared currency had traded at 72.58 pence and $ 1.1077 to the dollar.

During his Thursday news conference in Nicosia, Cyprus, Draghi struck an upbeat tone in his initial statement, saying that the recent stream of stronger-than-expected eurozone economic data has led the ECB to revise its economic projections upward. The central bank now expects annual real GDP to increase by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017.

“The risks surrounding the economic outlook for the euro area remain on the downside but have diminished following recent monetary policy decisions and the fall in oil prices,” Draghi said.

The euro traded higher after the initial statement, hitting a session high of $ 1.1116, but its momentum was abruptly halted during the question-and-answer session, after Draghi said the central bank wouldn’t buy eurozone bonds with yields lower than its deposit rate of negative 0.2%.

Josh O’Byrne, a London-based G10 FX Strategist with Citigroup, said this means the spread between short-term and long-term eurozone bonds will compress as the ECB buys longer-duration debt, dramatically reducing the risk premium for buying longer-duration debt, and giving investors more incentive to look abroad for higher-yielding debt.

“Given that a lot of core [euro-denominated] fixed income is already trading below that [negative 0.2% yield], this means there’s going to be increasing purchases further on the curve,” O’Byrne said. “If you have some discretion, you’re not going to be [buying eurozone debt].”

Draghi didn’t mention the euro in his policy statement, a departure from recent meetings where he highlighted the impact of diverging monetary policy in Europe and abroad on exchange rates.

O’Byrne said that this means the push for a lower euro will no longer be driven by policy makers, but by investors coping with the side effects of the ECB’s stimulus measures.

“Behind the scenes, I think they would rather see [the exchange rate] stabilize, but the market is going to do what it’s going to do, and having fewer attractively-priced assets in the market is going to increase the incentive for outflows,” O’Byrne said.

German Bunds Fall on Inflation Data; Euro Gains With Oil

(Bloomberg) — German bunds fell and the euro strengthened as consumer prices in the region signaled an easing of deflation risks. Oil extended its biggest monthly gain since 2009 while European stocks traded near a seven-year high.

The yield on 10-year German securities jumped three basis points to 0.33 percent at 7 a.m. in New York. That helped cut the gap with Italian rates to less than 100 basis points for the first time since 2010. The euro rose 0.2 percent to $ 1.1224. The Stoxx Europe 600 Index slid 0.1 percent and Standard & Poor’s 500 Index futures lost 0.2 percent. The lira fell to a record as Turkey’s economy minister said the government should discuss changing central bank regulations. Brent crude gained 1.5 percent on speculation global demand will recover.

More from Bloomberg.com: Emerson Needs Deals to Approach Outperforming Rivals: Real M&A

Italian inflation was 0.1 percent this month, better than the minus 0.3 percent rate forecast by economists in a Bloomberg News survey, and data from four German states also showed improvement while Spanish prices fell less than estimated. A bigger-than-forecast increase in U.S. core inflation sent the dollar soaring on Thursday after Federal Reserve Chair Janet Yellen signaled this week that while inflation is still too low for an imminent rate increase, the bank’s patience has limits. U.S. fourth-quarter economic growth will probably be revised lower, economists said before a Commerce Department report.

“After such a great start to the year for risky assets, the potential for a correction is rising,” said Alessandro Bee, a strategist at Bank J Safra Sarasin AG in Zurich. “All the good news of the past few months has been priced in. The big problem is that everything is expensive at the moment. But investors are still on the hunt for yield.”

More from Bloomberg.com: Rupee Posts Biggest Weekly Gain in a Month on Fed Rate Outlook

French Bonds

French bonds declined with Germany’s, pushing 10-year yields higher for the first time in six days as they climbed two basis points to 0.59 percent.

U.K. gilts also fell, sending 10-year yields four basis points higher to 1.78 percent. The yield has climbed 45 basis points in February, the first increase since September, after the Bank of England signaled it may raise interest rates sooner than is priced into the market.

Italian bonds rose for a second day, pushing the 10-year yield three basis points lower to 1.32 percent. That’s the lowest relative to German bunds, Europe’s benchmark sovereign securities, since May 2010. The securities are rallying as the prospect of the European Central Bank’s imminent 1.1 trillion euro ($ 1.2 trillion) stimulus plan suppresses borrowing costs.

More from Bloomberg.com: How Real Is the European Deflation Threat?

IAG SA added 4.9 percent after the company, the parent of British Airways, said full-year earnings surged 81 percent. Lloyds Banking Group Plc advanced 1.5 percent. Britain’s largest mortgage lender said it will resume dividend payments after reporting its first annual profit in five years.

Gap Gains

In the U.S., Gap Inc., the clothing retailer, added 2.9 percent after fourth-quarter profit beat estimates. Apparel retailer Ross Stores Inc. gained 4.6 percent after announcing a buyback and boosting its dividend.

J.C. Penney Co. plunged as much as 11 percent in extended trading after the department-store chain yesterday said it expects free cash flow to be flat this year, from $ 57 million in 2014. Analysts had forecast free cash flow of $ 25.4 million for the current fiscal year, according to data compiled by Bloomberg.

U.S. gross domestic product probably grew 2 percent in the four quarter, according to the median of 83 estimates in a Bloomberg survey of economists. That’s down from an initial reading of 2.6 percent.

Fed Bank of St. Louis President James Bullard said Thursday that the Fed Open Market Committee should remove its pledge to be “patient” in raising rates in March to give it flexibility to tighten policy as soon as June. The central bank has kept key rates near zero since 2008.

Rate Outlook

San Francisco Fed President John Williams, who votes on policy this year, expects inflation to return to the central bank’s target level of 2 percent by the end of 2015, and advocated for raising borrowing costs before then.

The MSCI Emerging Markets Index declined 0.2 percent, trimming February’s gain to 3.2 percent, the biggest monthly increase since May.

The lira dropped as much as 0.8 percent to 2.2548 per dollar and two-year notes jumped 37 basis points to 8.85 percent. Economy Minister Nihat Zeybekci said the Central Bank of Turkey’s independence should be conditional on the body taking “national interest” into account.

Russia’s ruble headed for its best-ever monthly advance as oil gained and the adversaries in the Ukraine conflict began pulling back heavy weapons. The currency advanced 0.1 percent and is up 13 percent in February. The dollar-denominated RTS index of stocks slipped 0.3 percent, trimming this month’s gain to 23 percent, the best performance worldwide after Greece.

The Shanghai Composite Index added 0.6 percent, poised for a monthly gain, before the start of the annual National People’s Congress meeting next week. The Hang Seng China Enterprises Index advanced 0.2 percent today.

Modi’s Budget

India’s S&P BSE Sensex added 1.1 percent, paring the monthly drop to 0.3 percent. Prime Minister Narendra Modi’s government presents its first full-year federal budget tomorrow.

The cost of insuring European corporate bonds is heading for the biggest monthly decline since October 2013, with the Markit iTraxx Europe Index of credit-default swaps on investment-grade companies down 11 basis points to a more than seven-year low of 49 basis points, according to data compiled by Bloomberg.

Coca-Cola Co. sold 8.5 billion euros of bonds in euros Thursday, the biggest sale by a U.S. issuer and bringing this week’s euro borrowing by American companies including Oreo cookies maker Mondelez International Inc. to an all-time high.

Credit-default swaps insuring $ 10 million of Greek government bonds for five years cost $ 3.8 million in advance and $ 100,000 annually, signaling a 65 percent probability of default, according to CMA.

Swedish Growth

Sweden’s krona rose against all of its 16 major peers after a report showed gross domestic product grew 1.1 percent in the fourth quarter from the period before, versus economist estimates for a 0.5 percent increase. The currency climbed 0.7 percent to 9.3472 per euro.

The Bloomberg Dollar Spot Index slipped 0.2 percent after surging 0.9 percent on Thursday and was little changed at 119.32 yen.

Brent crude, the benchmark for more than half the world’s oil, climbed $ 1.06 to $ 61.11 a barrel in London and is up 15 percent this month. The market will rebalance in the next several months as consumption gains and supply is curbed, according to the International Energy Agency, while Saudi Arabia’s oil minister said this week that demand is growing.

West Texas Intermediate climbed 1.9 percent to $ 49.10 a barrel in New York after tumbling 5.5 percent on Thursday. WTI’s discount to Brent crude widened to the most in 13 months after a report Wednesday showed U.S. crude supplies rose to the highest level since at least 1982.

To contact the reporters on this story: Nick Gentle in Hong Kong at [email protected]; Stephen Kirkland in London at [email protected]

To contact the editors responsible for this story: Stephen Kirkland at [email protected]; Stuart Wallace at [email protected] Stuart Wallace

More from Bloomberg.com

  • Italy-Swiss-Banks, Porsche Appeal, Bank Hiring: Compliance
  • European Stocks Little Changed as BASF Drop Offsets Airbus Gain
  • German Bunds Fall on Inflation Data; Euro Gains With Oil

Greek debt swap plan gets cool euro zone reception

By Jan Strupczewski

BRUSSELS, Feb 3 (Reuters) – A Greek proposal to swap government debt for bonds with interest payments linked to economic growth got a sceptical reception from euro zone officials on Tuesday.

Greece’s new finance minister, Yanis Varoufakis, on Monday floated the idea that Greek bonds held by the European Central Bank and part of the debt owed to euro zone governments — 53 billion euros of bilateral loans — could be swapped for either growth-linked, or perpetual bonds.

It was unclear if the idea entailed dropping demands for an official debt write-off or not. Varoufakis said Athens stood by its debt reduction demand but a source said the demand for a debt “haircut” was no longer there.

Either way, euro zone officials involved in negotiating financial assistance for Greece gave the debt swap a cool reception.

“We need more details. But first reactions are rather sceptical,” one euro zone official said. “There is a worry that it’s just a new trick how to do a haircut.”

Officials said there was no appetite for a restructuring of Greek debt held by the euro zone, now 195 billion euros.

The European Central Bank and euro zone national central banks that form part of the ECB system hold roughly another 50 billion euros.

“Varoufakis is intelligent, but he is underestimating the problems, and the constitutional leeway of the ECB and euro zone governments,” a second euro zone official said.

Apart from legal issues, the proposed debt swap posed several practical problems.

“With the caveat that we are lacking the details we’d need to assess the idea properly, I don’t see much appetite for it, and possibly considerable practical difficulties,” a third euro zone official said.

“For starters, what would be the threshold growth rate used for the growth-linked bonds? Would you base it on forecasts — presumably not — or actual data? What if the figure is later revised up or down, as can happen?” the official said.

A German DIW think-tank paper supported growth-linked bonds because they would lower the likelihood of a Greek default, stabilise the debt ratio even if growth was weak, provide an incentive for reforms and, if growth took off, they would make more money for the euro zone lenders.

But euro zone officials said the ECB was unlikely to agree to hold growth-linked or perpetual Greek bonds — paper that never matures but pays a relatively high annual interest – and that the financial conditions Greece now had from the euro zone bailout fund, the EFSF, could hardly be improved on.

“My gut reaction is that it’s a no go,” a fourth official said. “Why the financial engineering, if the costs are already as low as they can get?

“This is all very disturbing, if this is the best that Greece can come up with,” the official said.

Greece has a grace period on the repayment and servicing of its loans from the euro zone until 2023 and the average maturity of the loans already is 32 years.

(Editing by Mike Peacock and Giles Elgood)

Draghi Commits ECB to Trillion-Euro Asset-Purchase Plan to Fight Deflation

Mario Draghi led the European Central Bank into a new era, committing to a quantitative easing program worth at least 1.1 trillion euros ($ 1.3 trillion) to counter the threat of a deflationary spiral.

The ECB president shrugged off determined opposition led by German officials with a pledge to buy 60 billion euros every month through September next year in a once-and-for-all push to put more cash into circulation and revive inflation. To assuage critics, the region’s 19 national central banks will make 80 percent of the purchases and take on any risk they carry.

A near-stagnant economy and outright declines in consumer prices forced Draghi’s hand six years after the Federal Reserve took a similar step — and three months after the U.S. central bank ended its purchases. The 67-year-old Italian’s gamble is that the benefits of QE — should it work — outweigh the threat of a backlash in Germany.

Why It’s Harder for the ECB to Use QE

“One could argue that this type of approach Draghi is using should have been applied much earlier, which would have gotten Europe on a similar kind of platform the U.S. was on,” Stephen Schwarzman, chairman of the Blackstone Group LP, said in a Bloomberg Television interview at the World Economic Forum in Davos. “It is never too late to do the right thing.”

Photographer: Martin Leissl/Bloomberg

European Central Bank President Mario Draghi looks on during a news conference to announce the bank’s interest rate decision at the ECB headquarters in Frankfurt, today. Close

European Central Bank President Mario Draghi looks on during a news conference to… Read More

Open

Photographer: Martin Leissl/Bloomberg

European Central Bank President Mario Draghi looks on during a news conference to announce the bank’s interest rate decision at the ECB headquarters in Frankfurt, today.

‘Trust in Mario’

Investors reacted by selling the euro and buying European stocks. The shared currency declined to an 11-year low, losing 2.1 percent to $ 1.1370 at 7:30 p.m. in Frankfurt. The Euro Stoxx 50 added 1.7 percent. Athanasios Vamvakidis, head of G-10 foreign-exchange strategy at Bank of America Merrill Lynch, said the plan was at the high end of market expectations.

“We’ve seen over the last few years you have to trust in Mario,” Laurence Fink, chief executive officer of BlackRock Inc., said in Davos. “The market should never, as we have seen now, the market should not doubt Mario.”

The ECB’s shift exacerbates an emerging global split. While the Fed is considering when to tighten credit, central banks in Denmark, Turkey, India, Canada and Peru all announced surprise rate cuts in the past week. The Swiss National Bank shocked investors by dropping a cap on the franc.

The ECB’s Governing Council agreed to a faster pace of purchases than Draghi had proposed when they first gathered on Wednesday. While the size of the plan was the same as one cited by euro-zone central bank officials yesterday, buying was accelerated by 10 billion euros a month for completion three months sooner.

Strongest Dissents

Bundesbank President Jens Weidmann and Sabine Lautenschlaeger, the German member of the ECB’s Executive Board, reiterated their opposition to the QE decision with the strongest dissents, according to euro-area central bank officials with knowledge of the discussions. The Austrian, Dutch, and Estonian central bank governors were also said to express reservations.

Draghi made concessions to such critics. Reflecting the drive for consensus that has been a hallmark of Europe’s response to years of rolling crises, Draghi allowed the inclusion of a limit to the risks that the Eurosystem as a whole will be exposed to.

The ECB “decided to launch an expanded asset-program encompassing the existing purchase programs of ABS and covered bonds,” Draghi told reporters in Frankfurt. “We see sustained adjustment in the path of inflation which is consistent with our aim of achieving our aim of inflation rates close to but below 2 percent.”

Purchase Impact

ECB projections show the announced measures should boost the euro area’s inflation rate by 0.4 percentage point this year and 0.3 percentage point in 2016, a euro-area central bank official said. He and other officials cited anonymously on the decision didn’t want to be identified because the ECB’s discussions and assessments are private.

The ECB will hold a share of the securities while requiring individual central banks to conduct the bond purchases in the hope that will make nations more responsible for the management of their economies.

Monthly acquisitions will probably comprise about 45 billion euros of sovereign debt, 5 billion euros of bonds issued by institutions and agencies, and 10 billion euros under existing programs for asset-backed securities and covered bonds, according to another official.

Draghi said the ECB would limit its purchases to 25 percent of any single bond issuance, and 33 percent of the instruments available from one issuer. The debt held by the ECB would not be senior to other investors’ purchases.

Hypothetical Losses

“With regard to sharing of hypothetical losses, purchases of securities of European institutions, which will be 12 percent of additional purchases, will be subject to loss sharing,” the central banker said. “The ECB will hold 8 percent of additional asset purchases. That implies that 20 percent of additional purchases will be subject to a regime of risk sharing.”

The curbs are aimed at calming concerns aired most loudly in Germany that the ECB is unfairly aiding uncompetitive nations that do little to help themselves. Those critics also say it’s an unwelcome step into politics that effectively mutualizes debt risks and finances governments through the back door. Weidmann has described quantitative easing as “sweet poison” for governments.

“We took these concerns into account and that’s why this decision will mitigate those concerns,” Draghi said.

That matters now because Greek elections in three days could bring to power a party seeking to renegotiate the country’s debts, most of which are held by European taxpayers.

Junk Rated

Draghi held out the prospect that junk-rated Greece could still benefit from asset purchases by July if it remains in a European-Union monitored program.

“There’s a waiver that has to remain in place, and there’s this 33 percent issuer limit,” Draghi said. “If all other conditions are in place, we could buy bonds I believe in July because there will be some large redemptions.”

The downside of the horse-trading is that the program potentially packs less punch and the unwillingness to share risk exposes fault lines in the monetary union. If investors reject it as insufficient, the ECB may have to do even more later.

“The ECB left the option open to continue the purchases beyond September 2016,” said Christian Schulz, senior euro-area economist at Berenberg Bank in London. “Expectations have risen considerably in recent days, but the ECB still managed to beat most today.”

To contact the reporters on this story: Jeff Black in Frankfurt at [email protected]; Simon Kennedy in London at [email protected]

To contact the editors responsible for this story: Fergal O’Brien at [email protected] James Hertling, Craig Stirling

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

Euro-Area Bonds Gain on Deflation Concern, Coeure Comments on QE

Euro-area government bonds rose, led by those of Portugal and Italy, amid speculation the risk of deflation in the region will prompt the European Central Bank to expand stimulus measures as soon as this month.

German 10-year yields approached a record low as Die Welt cited ECB board member Benoit Coeure as saying the institution is ready to decide on buying sovereign debt when officials meet on Jan. 22. Bonds worldwide were boosted as declines in oil and copper dragged the Bloomberg Commodity Index to a 12-year low, curbing inflation expectations. The Netherlands sold securities, while Austria, Germany and Italy were due to auction debt. Slovakia and Portugal may sell bonds via banks.

“The inexorable decline in oil prices is reinforcing global disinflation pressures,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. That’s “prompting further declines in 10-year bund yields amid rising expectations of QE by the ECB sooner rather than later.”

Portugal’s 10-year yield dropped four basis points, or 0.04 percentage point, to 2.56 percent at 9:14 a.m. London time. The rate fell to 2.418 percent on Jan. 2, the lowest since Bloomberg started tracking the data in 1997. The 5.65 percent bond due in February 2024 rose 0.38, or 3.80 euros per 1,000-euro ($ 1,182) face amount, to 124.75.

The rate on similar-maturity Italian bonds fell four basis points to 1.77 percent, while that on German 10-year bunds declined two basis points to 0.46 percent. It touched a record 0.432 percent on Jan. 7.

Inflation-Swap

The five-year, five-year forward inflation-swap rate, highlighted by ECB President Mario Draghi in August at a symposium for central bankers, was at 1.50 percent today. That would be the lowest close since at least 2004. A report last week showed the euro area’s consumer-price index dropped an annualized 0.2 percent in December. The ECB’s inflation goal is just under 2 percent.

Brent crude slumped as much as 4.6 percent today to the lowest since March 2009 and copper dropped 1.4 percent.

Portuguese securities returned 1.9 percent in the past three months, according to Bloomberg World Bond Indexes. Germany’s added 3.3 percent and Italy’s earned 2.8 percent.

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

To contact the editors responsible for this story: Paul Dobson at [email protected] Mark McCord, Keith Jenkins