Euro Slides to Weakest Since 2006 on ECB, Greece

The euro weakened to an almost nine-year low versus the dollar amid investor concern Greece might leave the currency union and on speculation the European Central Bank has moved closer to large-scale sovereign-bond purchases.

 

A gauge of the dollar reached the strongest in nine years with the Federal Reserve moving toward raising interest rates. The yen rose to an eight-week high against the euro as a slide in Asian stocks boosted demand for haven assets. Russia’s ruble tumbled as oil fell. The British pound fell a second day. Volatility jumped to the highest in more than a year.

 

“It’s probable that the euro will go on sinking,” Stephen Lewis, chief economist at ADM Investor Services International Ltd, said by phone from London. “There are very few fundamental factors in its favor. Lurking in the background, there are problems over Greece and therefore questions as to whether the euro zone is going to hold together.”

 

The euro dropped 0.6 percent to $1.1936 as of 10:26 a.m. in New York after sliding to $1.1864, the least since March 2006. The shared currency fell 1.4 percent to 142.68 yen and earlier was at 142.56, the lowest since Nov. 10. The dollar depreciated 0.8 percent to 119.56 yen.

 

The Bloomberg Dollar Spot Index (BCOM), which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,143.05 and touched 1,146.49, the highest in data going back to 2005.

Volatility Jumps

JPMorgan Chase & Co.’s Global FX Volatility Index climbed to the highest since September 2013. The gauge rose four basis points to 10.08 percent after earlier reaching 10.27 percent. It has increased from a record-low 5.28 percent set last July.

 

Oil declined for a third day, with Brent crude falling below $55 a barrel for the first time since May 2009, after the Bloomberg Commodity Index slumped 17 percent last year, the worst performance since 2008.

 

The ruble of Russia, the largest energy exporter, decreased 1.3 percent to 59.49 per dollar in Moscow, in its first day of trading of 2015 after a 46 percent decline last year, when it reached a record-low 80.10.

 

The pound slipped to its weakest level in 17 months as data showed construction output in the U.K. slowed more than analysts predicted last month, adding to evidence that the economic recovery is losing momentum.

 

Sterling fell as much as 1 percent to $1.5176, the lowest since August 2013, before being 0.6 percent weaker at $1.5242.

 

South Korea’s won dropped for a third day as BNP Paribas SA said disinflationary pressures were keeping alive the possibility the Bank of Korea will cut interest rates in the first quarter.

 

The won depreciated 0.6 percent to close at 1,109.69 per dollar in Seoul and touched 1,111.70, the weakest level since Dec. 9.

Draghi’s View

The euro slid against most of its major peers after President Mario Draghi said in an interview with German newspaper Handelsblatt published Jan. 2 that policy makers were ready to act if needed to counter deflation.

 

“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said. “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary.”

 

Greece began an election campaign that Prime Minister Antonis Samaras said may lead to an exit from the euro region should the Syriza party win. Der Spiegel magazine reported German Chancellor Angela Merkel considers a Greek exit from the euro to be manageable.

‘Triple Whammy’

Economic data due Jan. 7 was forecast by economists in a Bloomberg survey to show euro-area consumer prices dropped 0.1 percent in December from a year earlier, the first decline since 2009.

 

“There’s a triple whammy of events that look set to trip up the single currency,” Steve Barrow, head of Group of 10 strategy at Standard Bank Plc in London, wrote in a client note today, referring to the inflation report, possible asset purchases by the ECB and a snap election in Greece. The euro will drop to $1.10 in the next 12 months, Barrow said.

 

The euro has fallen 0.7 percent in the past week among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.3 percent and the yen rose 2.4 percent.

Source: Bloomberg (05 Jan 2015)