BS: Euro Approaches Nine-Year Low on Stimulus Outlook; Krona Gains
The euro fell toward a nine-year low versus the dollar as officials fueled speculation that the European Central Bank will begin buying government bonds as early as next week to stave off deflation.
The pound dropped against most of its 16 major counterparts as U.K. inflation slowed to a 15-year low. ECB policy makers -- who already have cut their refinancing rate to a record, introduced a negative deposit rate and offered cheap funding to banks to boost lending -- next decide on monetary policy on Jan. 22. Sweden’s krona rose as consumer prices fell less than analysts estimated. Russia’s ruble dropped as oil prices extended their slump.
“I suspect the real damage to the euro was done with the deposit rate -- that’s when the euro really started motoring to the downside and QE, if anything, has been an added bonus,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London, referring to quantitative easing. “We might get a correction in the euro if the program is not up to what we expect but ultimately the downtrend in the euro is set.”
VIDEO: Central Bank Sends Euro to Weakest Level Since 2006
The euro dropped 0.3 percent to $1.1794 at 7:21 a.m. New York time after sliding to $1.1754 on Jan. 8, the weakest level since 2005. Europe’s common currency fell 0.2 percent to 139.82 yen. The yen declined 0.2 percent to 118.55 per dollar after reaching 117.74, the strongest since Dec. 17.
Europe’s 19-nation currency may drop to parity against the dollar in the next 12 months, Mellor said. The median of economists and strategists’ predictions compiled by Bloomberg is for the euro to end the year at $1.17 and extend that drop to $1.15 in 2016.
VIDEO: Euro Trades at Nine-Year Low vs. the U.S. Dollar
QE Decision?
The ECB is “in a position to take a decision on Jan. 22” even as that “doesn’t necessarily have to mean that we will actually take a decision,” Executive Board member Benoit Coeure was quoted as saying in an interview with Die Welt. Governing Council member Ewald Nowotny said during a panel discussion late yesterday in Vienna that policy makers must treat the threat of deflation seriously and shouldn’t delay a response.
The euro has fallen 2.3 percent in the past month against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, while the dollar gained 3.8 percent, reflecting the divergence in policy outlook between the ECB and the Federal Reserve.
VIDEO: Euro Drops to $1.1864; Weakest Since 2006
The ECB cut its deposit rate to less than zero for the first time in June and lowered its refinancing rate to 0.05 percent, while the Fed has signaled it is moving toward increasing borrowing costs.
The pound fell less than 0.1 percent to $1.5166 and strengthened 0.2 percent to 77.77 pence per euro. It fell most against the krona, sliding 0.8 percent to 12.1535 per pound.
U.K. Inflation
U.K. consumer-price growth decelerated to 0.5 percent from 1 percent in November, the Office for National Statistics said in London today. That’s the slowest since May 2000 and below the 0.7 percent median forecast of economists surveyed by Bloomberg News. A separate report showed factory-gate prices recorded their biggest annual drop in five years.
VIDEO: Euro Trading Near a Nine Year Low
Sweden’s krona jumped 0.7 percent to 8.0134 against the dollar, the first advance since Jan. 6. It was 1.1 percent stronger at 9.4518 versus the euro.
Sweden’s consumer prices fell an annual 0.3 percent in December, according to Statistics Sweden, less than the 0.5 percent decline predicted in a Bloomberg survey of analysts. Assuming constant interest rates, inflation was 0.5 percent, beating the 0.2 percent estimate.
The ruble weakened 3.8 percent to 65.60 per dollar, extending its slide this year to 7.4 percent against the dollar, the most among 31 major currencies tracked by Bloomberg.
VIDEO: 'Very Low' Chance of Greece Exiting Euro Area: Kirkegaard
Brent crude oil for February settlement slid as much as 4.7 percent, to $45.19 a barrel on the London-based ICE Futures Europe exchange, before being 3.2 percent weaker at $45.88. Oil slumped almost 50 percent last year, the most since the 2008 financial crisis.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White, Keith Jenkins
