The euro fell to a fresh 12-year low against the dollar on Wednesday, extending a broad decline after the European Central Bank kicked off its €1 trillion bond-buying programme this week.

The ECB began printing money to buy sovereign bonds on Monday with a view to supporting growth and lifting euro zone inflation from below zero. Yields on the debt of nearly all euro zone countries dropped to record lows overnight.

“With the ECB beginning its quantitative easing, there’s definitely a sense that funds are flowing out,’’ said Mitul Kotecha, head of FX strategy, Asia-Pacific for Barclays in Singapore.

“It’s not a one-way flow, but there is this expectation with ECB QE that there is going to be substantial outflows from Europe, as QE intensifies,’’ he said.

German 10-year yields dropped to 0.226 per cent, below the 10-year Japanese government bond yield of 0.430 per cent. The two-year German bond offered a negative yield of 0.235 per cent.

The euro slid to $1.0666, extending Tuesday’s 1.4 per cent drop to lows not seen since April 2003 and opening up the way to the 2003 trough of $1.0501. It last stood at $1.0671, down about 0.2 per cent on the day.

It hit a seven-year low against sterling at 70.79 pence early on Wednesday and touched 129.21 yen versus its Japanese peer, its lowest since August 2013.

Greece debt talks

The common currency also has been pressured by persistent uncertainty about cash-strapped Greece as it gears up to resume talks with creditors in Brussels later in the day. Many fear the possibility that Greece could exit from the euro zone, and Italy’s economy minister warned this outcome should be avoided.

Fed interest rate hike

Upbeat US employment data on Friday heightened market speculation that the Federal Reserve could lift interest rates by the middle of this year.

That helped bolster the dollar index as high as 98.849, its loftiest peak in over 11 years and closer to breaking the 100.000 figure that has remained intact since April 2003.

The euro’s weakness gave the greenback a lift, helping it reach parity against the Swiss franc, and touching a nearly eight-year high of 122.04 yen on Tuesday. The dollar has since retreated to 121.45 yen, still up about 0.3 per cent on the day.

“With key USD pairs rapidly overtaking many forecasts once viewed as aggressive and hitting established trading targets, many market participants are unsurprisingly questioning whether moves have been excessive and could be prone to correction,’’ analysts at BNP Paribas wrote in a note to clients, though they left their recommendations on major pairs intact.

“We remain long USD, continuing to target 1.05 in EURUSD and 125 in USDJPY.’’

Among commodity currencies, the Australian dollar slumped to a six-year trough of $0.7588, on track to test $0.7451, its lowest since May 18, 2009.

Reserve Bank of Australia Assistant Governor Christopher Kent had said on Wednesday that the fall in the local dollar was starting to help the economy.

Further weighing on the Aussie, China, its biggest trading partner, will release industrial output, retail sales and investment data later in the day. All are expected to show slowing growth.

Related Topics
comment COMMENT NOW