The euro fell to a 11-1/2 year low against the dollar on Thursday as investors waited for the European Central Bank to announce more details of its massive bond-buying programme.

The euro fell to $1.1026 in Asia, its lowest since early September 2003. It last traded at $1.1049, down 0.25 per cent on the day. The euro has lost 8.5 per cent this year as investors geared up for the start of the ECB’s asset purchases this month.

Quantitative easing programme

The central bank is expected to detail the €1 trillion quantitative easing (QE) scheme later in the day following its policy meeting.

Markets will be looking for how the programme will work, when the buying will start, whether it applies to paper with negative yields and how the purchases will be distributed along the yield curve.

A key concern that currency investors have is whether the ECB can buy €60 billion of assets per month. While many local European investors are not likely to sell, because they have a tough time replacing the assets with anything offering a similar yield, foreigners, could be more willing to sell and take profits and invest the proceeds in gilts or Treasuries.

That should weigh on the euro, analysts said.

“The latest move (in the euro) suggests a vote of confidence that the ECB's QE programme will at least succeed in weakening the currency,’’ said Marshall Gittler, head of FX strategy at IronFX Global.

“The euro could weaken further today as the ECB is likely to reiterate its pledge to keep QE in place until it has proved successful in raising inflation back to target.’’

Divergence in monetary policies

Jesper Bargmann, head of trading for Nordea Bank in Singapore, said the divergence in the outlook for monetary policies in the United States and the euro zone is also likely to add to the downward pressure on euro versus the dollar.

“I think the dollar may keep strengthening as we wait for the first rate hike in the U.S.... The trend is in place,’’ Bargmann said.

Investors have already driven yields across Europe to record lows in anticipation of the ECB’s largesse, widening the yield advantage of the US dollar in the process.

While there is much uncertainty over when the US Federal Reserve will start raising rates, some analysts expect it to drop the word “patient’’ in its forward guidance at its policy meeting on March 17-18, paving the way for a possible policy tightening in June or later.

The dollar hit a fresh 11-year high against a basket of major currencies. The dollar index rose to as high as 96.286, its strongest level since September 2003. Against the yen, the dollar rose 0.1 per cent to 119.83 yen.