Euro hovers near 9-yr lows, undermined by ECB QE bets
The euro extended losses into a sixth straight day to trade near a nine-year low on Thursday, as investors bet the European Central Bank was getting closer to adopting quantitative easing to ward off deflation.
A slump in German industrial orders in November reinforced bearish views of the single currency. So did concern that a Greek general election on Jan 25 would lead to a stand-off between Berlin and Athens over the austerity imposed on Greece.
The euro was trading at $1.1815, down 0.2 percent on the day, after falling to $1.1802 the previous day and putting the 2005 trough of $1.1640 within reach. Traders cited option barriers at $1.18.
“In the run-up to the ECB meeting on Jan. 22 we expect more euro short positions to be put in place. So while the euro has fallen, we think there is further room, given expectations that QE may be announced at that meeting,” said Yujiro Goto, a currency strategist at Nomura, London.
Data on Wednesday showed consumer prices in the euro zone fell in December from a year earlier, marking the first annual decline since 2009. That cemented expectations the ECB will open a bond buying program at its policy meeting on Jan. 22.
“Expectations that the ECB will start quantitative easing are strengthening. Some people say it could fall to around $1.15,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
In contrast, the Federal Reserve is still expected to raise interest rates, although the timing remains unclear. Minutes of the December meeting offered no new clues, although most expect the Fed to act around mid-year.
The dollar climbed back above 119.75 yen, pulling away from a three-week trough of 118.36 reached on Tuesday. Weakness in the euro kept the dollar index at nine-year highs. The index last traded at 92.234, near the peak of 92.265 set overnight.
The dollar moved higher after a better-than-expected U.S. jobs report from ADP on Wednesday, which bolstered expectations of a good non-farm payrolls report on Friday. Forecasts are the economy added 240,000 jobs in December.
“Any number above 200,000 should keep the broad dollar strength trend in place,” said Nomura’s Goto.
Source: Reuters – Euro hovers near 9-yr lows, undermined by ECB QE bets
