Euro Slides to New Nine-Year Low Against Dollar

 
     By James Ramage and Tommy Stubbington 
 

        The euro pushed to a new nine-year low against the dollar on Wednesday after weak euro-zone inflation data cemented expectations that the European Central Bank would soon begin a large-scale sovereign-bond-buying program.
        The euro fell as low as $1.1802 in the Americas session, the weakest level since Jan. 2, 2006, before recovering to $1.1840, down 0.4% for the day. The currency has fallen more than 2% against the dollar this year.
        The European Union's statistics agency on Wednesday said consumer prices last month were 0.2% below their December 2013 levels, the first time inflation in the euro-zone had fallen on an annual basis since 2009.
        The fall in prices had been broadly anticipated following the oil market's plunge over the last six months, with bonds in the euro-zone rallying to record highs and the euro weakening. Nevertheless, the report raised market expectations for the ECB to ease policy at its next meeting, which would further hurt the euro, said Vassili Serebriakov, currency strategist at BNP Paribas.
        Unlike the Federal Reserve, which has hinted it may look past the "transitory" effects of energy prices on inflation as it decides when to raise interest rates, the ECB is likely to press ahead with further stimulus in the first quarter of 2015, according to Javier Corominas, head of economic research and a portfolio manager at Record Currency Management, which oversees $52.6 billion of assets.
        "They are going to take this as the ammunition they need to do" quantitative easing, Mr. Corominas said.
        The ECB could announce the launch of a program to buy sovereign debt at its next monetary-policy meeting on Jan. 22, Mr. Serebriakov said.
        In addition, persistent jitters over Greek politics compounded concerns over weak growth and inflation in the euro area. Investors are worried that antiausterity parties in Greece could win elections later this month, and that could lead to a messy renegotiation of the country's bailout program and even pave the way for Greece's departure from the euro zone.
        On Wednesday afternoon, the dollar pared some gains after minutes from the Federal Reserve's most recent policy meeting revealed little new information for investors. The dollar traded at ¥119.18 from ¥119.28 before the release of the minutes, still up 0.7% on the day.
        The Federal Open Market Committee minutes showed officials considered both the significant deterioration of major overseas economies and the improvement of the U.S. economy. Most committee members saw the effects of falling oil prices and the rally in the dollar as temporary, expecting that as their impact waned, inflation would rise gradually to the central bank's 2% target.
        The Fed noted that it doesn't need to see core inflation higher than current levels before it raises rates; it just needs to be confident it will move back toward the target over time, said Ian Gordon, currency strategist at Bank of America Merrill Lynch. Central banks in Japan and the euro zone continue to adopt measures to battle anemic growth and extremely low inflation.
        "The minutes further emphasize the policy divergence between the Fed and other central banks; they're still on track to raise interest rates in the middle of 2015," Mr. Gordon said. "That should be positive for the dollar. But we've had pretty big moves in the dollar recently, so [the U.S. currency's rise is] not necessarily something that will happen immediately."
        Investors have been piling into the dollar in the belief the Fed would raise interest rates before other central banks. Higher U.S. rates would boost returns on assets denominated in the currency. Many market participants expect the Fed to raise rates around the middle of the year.
        (END) Dow Jones Newswires

        January 07, 2015 17:19 ET (22:19 GMT)

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