Euro Plunges to 11-Year Low as Draghi Leads Global Stimulus Bids

By Lananh Nguyen and Rachel Evans  

Photographer: Simon Dawson/Bloomberg

The yen pared weekly losses yesterday after Band of Japan Governor Haruhiko Kuroda... Read More

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The euro plunged to an 11-year low as Mario Draghi rocked the market with a sovereign-bond buying program that exceeded forecasts.
The 19-nation currency fell versus 27 of its 31 major peers posted its biggest weekly drop in three years after the European Central Bank president outlined details of a $1.1 trillion euro ($1.23 trillion) stimulus plan. Denmark’s krone slid as that nation cut interest rates twice, while Canada’s dollar plunged on the first decrease in borrowing costs since 2009. A gauge of the greenback closed at the highest on record before the Federal Reserve is forecast to hold rates unchanged next week.
“The downside for the euro is substantial,” Jurgen Odenius, chief economist at Prudential Financial Inc.’s fixed-income division, said by
phone from Newark, New Jersey, on Friday. “The channel through which Draghi’s hoping to achieve an increase in inflation is through a weaker euro.”
The euro dropped 3.1 percent to $1.1204 on Friday in New York, the biggest weekly loss since September 2011, and touched $1.1115, the least since September 2003. The currency was headed for a seventh monthly decline against the dollar.
The shared currency tumbled 2.9 percent to 131.95 yen, while Japan’s legal tender slid 0.2 percent to 117.77 per dollar.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 1.9 percent to 1,161.31, the highest close in data going back to 2004.

Krone, Loonie

The krone tumbled as Denmark lowered its benchmark deposit rate to a record 0.35 percent Thursday, its second rate cut in less than a week, signaling the central bank is ready to step up currency interventions. The krone slid 3.3 percent to 6.6454 per dollar and touched 6.6966, the least since 2003. It fell 0.1 percent to 7.4455 per euro.
“With the ECB getting ready to flood the market with euros, Danmarks Nationalbank may need to cut the certificates of deposits rate further into negative territory to curb downward pressure on euro-krone,” Jens Pedersen, an analyst at Danske Bank A/S, said in a note Jan. 22.
Canada’s dollar fell for a ninth week, the longest skid since 2000, after the central bank unexpectedly cut interest rates on Wednesday, saying crude oil’s collapse will slow inflation and weigh on the economy. Brent crude, the global benchmark, has fallen more than 50 percent from its 2014 peak in June.
The loonie tumbled 3.5 percent to $1.2420 and touched $1.2456, the lowest since April 2009.

Best, Worst

Russia’s ruble posted the biggest gains among the dollar’s top 31 peers this week, adding 2.5 percent, as investors channeled money back into higher-yielding assets.
The New Zealand and Australian dollars led in losses as the Bank of Canada’s unexpectedly cut in interest rates spurred speculation that the South Pacific nations’ central banks will favor looser monetary policy.
The kiwi dropped 4.4 percent to 74.50 U.S. cents and touched 74.32, the least since November 2011. The Aussie fell 3.8 percent to 79.12 U.S. cents after earlier dropping to 78.81, the lowest since July 2009.
Bloomberg’s gauge of the dollar climbed a sixth day, the longest streak since September, on prospects the U.S. economy will outperform those of Europe and Japan as the Fed moves to become the first major central bank to raise interest rates later this year. It sets policy Jan. 28.

‘Economic Growth’

The chance of a Fed interest-rate increase by its October meeting was at 51 percent, futures data show, down from 72 percent at the end of 2014. The central bank has kept its target for the federal funds rate at zero to 0.25 percent since 2008.
The yen pared weekly losses yesterday after Band of Japan Governor Haruhiko Kuroda suggested the central bank may broaden its approach to stimulus.
“We can make adjustment to our monetary policy,” Kuroda said in an interview with Bloomberg Television in Davos, Switzerland, declining to specify the options available.
The ECB’s quantitative-easing plan comprises monthly purchases of 60 billion euros through September 2016 in a once-and-for-all push to put more cash into circulation and revive inflation.
“I’m ecstatic,” said Philippe Brugere-Trelat, portfolio manager at Franklin Mutual Series, which manages $74 billion of assets as part of Franklin Templeton. “I’m very happy because my fund is positioned precisely for the resumption of economic growth in Europe and an increase in earnings from exports,” he said by phone from Short Hills, New Jersey, on Thursday.
Hedge funds and other large speculators increased bets on a decline in the euro against the dollar to the most since June 2012. The difference in the number of wagers on a drop compared with those on a gain -- so-called net shorts -- was 180,730 on Jan. 20, from 167,851 a week earlier, according to data from the Washington-based Commodity Futures Trading Commission.