The euro fell to the weakest in almost nine years against the dollar amid speculation the European Central Bank is moving closer to large-scale bond purchases.
The shared currency slid as much as 1.2 percent today after President Mario Draghi last week gave his clearest signal the ECB will start quantitative easing. The euro also weakened as Greece began an election campaign that may see victory by an anti-austerity party. A gauge of the dollar headed for its highest ever close as the Federal Reserve moves toward raising interest rates. New Zealand’s dollar and South Africa’s rand fell along commodity currencies
“The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE and deepening concerns about the Greek political situation,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff.”
The euro dropped 0.5 percent to $1.1945 as of 6:58 a.m. in London after sliding to $1.1864, the weakest level since March 2006. The shared currency fell 0.6 percent to 143.82 yen after declining to 143.16, the lowest since Nov. 11. The dollar was little changed at 120.33 yen.
Draghi said policy makers were ready to act if needed to counter deflation, in an interview with German newspaper Handelsblatt published Jan. 2. The ECB next meets Jan. 22.
“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.”
The euro has fallen 0.3 percent in the past week, the third worst performer of 10-developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.6 percent and the yen rose 1.9 percent.
Greek opposition leader Alexis Tsipras said his Syriza party would end German-led austerity if it wins the Jan. 25 vote. German Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, Der Spiegel magazine reported.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose for a second day. The gauge climbed 0.3 percent to 1,144.17, set for the highest close since its inception date of Dec. 31, 2004.
“The euro remained firmly out of favor as markets bank on details of upcoming ECB quantitative easing being nailed down as soon as Jan. 22,” Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a note to clients. The dollar is poised to extend gains as “roadblocks are expected to be few and far between on a journey towards a higher Fed Funds rate,” she said.
The yen rose to an eight-week high against the euro as a slide in Asian stocks boosted demand for haven assets.
“There are concerns for risk-off trades” and that is driving the yen higher, said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. Germany is starting to suggest that Greece may leave the euro, and “those sort of uncertainties are behind the trades,” he said.
The kiwi fell 0.8 percent to 76.37 U.S. cents and the rand slid 0.4 percent to 11.7309 per dollar. Oil declined for a third day after the Bloomberg Commodity Index slumped 17 percent last year, the worst performance since 2008.
JPMorgan Chase & Co.’s Global FX Volatility Index climbed to the highest since September 2013. The gauge rose 19 basis points to 10.23 percent after climbing to 10.27 percent. It has increased from a record-low 5.28 percent set in July.
The South Korean won dropped for a third day as BNP Paribas said disinflationary pressure were keeping alive the possibility the Bank of Korea will cut interest rates in the first quarter.
The won declined 0.6 percent to 1,109.69 per dollar after depreciating to 1,110.70, the weakest level since Dec. 9.