The euro hit an 11-year low of below $1.13 on Friday, a day after the European Central Bank announced a plan to pump more than a trillion euros into the faltering euro zone economy, and two days before a snap election in Greece.
The euro fell more than 2 per cent against the dollar on Thursday — its biggest daily fall in over three years — after the ECB said it would buy government bonds from March until September 2016 to revive the economy and prevent deflation from setting in.
The euro fell to $1.1258 in early European trading on Friday, its lowest since September 2003 and down 0.7 per cent on the day. That left the currency on track for a sixth straight week of losses.
“The reason why the euro sells off on quantitative easing is that this expands the ECB balance sheet — they’re going to create extra euro liquidity, putting the euro under pressure,’’ said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
Stannard added that the bank had revised its end-of-year forecast for the euro in a base case scenario to $1.05 from $1.12 before the ECB's announcement. A bearish scenario had the single currency diving to $0.90 by the end of the year.
The ECB left open the possibility that the asset buying could go on past September 2016, which traders said could keep pressure on the euro.
“The open-ended structure is the important thing in my opinion. Even though it’s intended to last until September 2016, it’s not an actual line in the sand,’’ said Jesper Bargmann, head of trading for Nordea Bank in Singapore.
Dollar index at 94.16 after ECB move, up 4 per cent in 2015. Continued strength will hurt US exports. How far will US allow this?
— lokeshwarri sk (@lokeshwarri)
January 23, 2015Greek elections
The euro is set for another trial as global markets await snap Greek elections on Sunday. A win for the leftist Syriza party, which has pulled ahead in opinion polls, could trigger a standoff with the EU/IMF lenders.
The shared currency also set a fresh seven-year low versus sterling on Friday, falling to as low as 75.19 pence , down 0.6 per cent on the day.
Against the yen, the single currency fell over 1 per cent to a 14-month trough of 133.205 yen.
Data on Friday showing the euro zone economy began 2015 in a better shape than expected did nothing to alleviate the pressure on the single currency.
Central Bankers in Denmark, Turkey, India, Canada and Peru to cut rates on falling commodity pr US all set to hike. Interesting times ahead.
— lokeshwarri sk (@lokeshwarri)
January 23, 2015