ECONOMY

Euro drops to 11-year low as Greek vote adds to slide on ECB QE

The euro fell to the lowest in more than 11 years versus the dollar on concern an anti-austerity party will take power in Greek elections, exacerbating the currency’s drop after the European Central Bank widened its stimulus program.

The shared currency headed for a sixth weekly decline before the vote on Sunday that may oust Greece’s Prime Minister Antonis Samaras. Denmark’s krone was about 0.2 percent from its euro-linked exchange-rate target as the central bank in Copenhagen signaled it’s ready to step up currency-market interventions. Australia’s dollar declined to the lowest since 2009.

“The Greek election provides another reason to sell euro in case the ECB decision was not enough,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “A period of consolidation in the mid-$1.13 is reasonable today, but there is no reason to believe a low is in place.”

The euro fell 1.2 percent to $1.1234 at 10 a.m. London time after touching $1.1230, the weakest since September 2003. It fell 2.1 percent on Thursday after the ECB said it would buy $60 billion euros a month of debt to stimulate euro-region inflation. The shared currency is set for a 2.9 percent weekly loss against the greenback, having dropped 9.9 percent since Dec. 12.

The euro declined 1.2 percent to 133.04 yen. The dollar was little changed at 118.44 yen.

Greek voters go to the polls on Jan. 25 in a general election that will decide whether Europe’s most-indebted country sticks to an austerity program that ensures its financial lifeline from creditors such as Germany. Alexis Tsipras, who leads the opposition SYRIZA group, has vowed to abandon the budget constraints that underpin the support while keeping Greece in the currency union.

The euro slid against all but one of 16 of its major peers a day after ECB President Mario Draghi told reporters in Frankfurt that the central bank will start buying from March until September 2016. The QE will compromise 45 billion euros in investment-grade government bonds, as well as the debt of public agencies and existing programs to buy asset-backed securities and covered bonds, a euro-area official said on Thursday.

“The bottom may not come into vision until we see a case for a persistent further slide in euro, with little technical support until nearer parity to the dollar,” Greg Gibbs, head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore, wrote in an emailed note. “The market sees a case for an early exit in ECB QE or higher policy rates, making a fall to record lows nearer 0.80 entirely possible,” he said referring to the euro-dollar exchange rate.

The Bank of Canada cut borrowing costs by a quarter of a percentage point on Wednesday, and the Danish central bank reduced its key interest rate for a second time this week the following day.

Denmark’s national bank, which targets 7.46038 kroner per euro, has “plenty of kroner” and “the necessary tools in terms of interest-rate changes and interventions,” Copenhagen- based Karsten Biltoft, head of communications, said in a phone interview.

The currency was little changed at 7.4432 per euro after weakening 0.1 percent on Thursday.

Traders see a 47 percent chance Australia’s central bank will cut rates at this year’s first policy meeting on Feb. 3, up from 25 percent odds on Jan. 16, according to overnight interest rate swaps.

The Aussie fell 0.9 percent to 79.54 US cents, set for a 3.2 percent weekly slide. It earlier dropped to 79.50 cents, the lowest since July 2009. New Zealand’s dollar declined 0.4 percent to 74.73 US cents, falling for a sixth day and to the least since November 2011.

A gauge of the US dollar was set for its biggest weekly gain since June 2013 on prospects the US economy will outperform those of Europe and Japan, allowing the Federal Reserve to become the first major central bank to raise interest rates this year. The Fed sets policy on Jan. 28.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.4 percent to 1,160.65, having climbed 1.9 percent this week. It closed at 1,156.11 on Thursday, the highest since the index started in 2004.

“The prospect of the Fed statement next week — which reiterates that the economy is recovering well and most likely they need to raise rates this year — definitely underpins the dollar,” Westpac’s Callow said.

The dollar is the biggest gainer in the past week among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. It added 2.6 percent, the yen rose 1.7 percent and the euro was down 0.6 percent.

[Bloomberg]