ECONOMY

Euro heads for biggest monthly loss since March on ECB outlook

euro-heads-for-biggest-monthly-loss-since-march-on-ecb-outlook

 The euro headed for its biggest monthly decline since March as economists unanimously forecast the European Central Bank will unveil additional stimulus this week.

The 19-nation currency approached the lowest in seven months versus the dollar as investors are pricing in a 100 percent chance of a 10-basis-point cut in the ECB’s deposit rate on Dec. 3. A gauge of the dollar climbed to the highest since March as futures predict the Federal Reserve will increase interest rates in December, expanding the divergence between the two central banks.

“Euro selling will see its climax going into the ECB meeting, with a knee-jerk reaction to the outcome possibly sending it to new lows for the year close to $1.03,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “The euro will likely see its trough in January-March but chances will grow for its rebound as expectations for U.S. rate hikes will be more moderate next year.”

The euro was little changed at $1.0588 as of 1:56 p.m. in Tokyo after sliding to $1.0566 on Nov. 25, the lowest since April 14. The currency has weakened 3.8 percent in November, its biggest loss since a 4.2 percent decline in March, when the ECB embarked on its 1.1 trillion-euro ($1.2 trillion) asset-purchase program.

The U.S. Dollar Index, which tracks the greenback against six major peers, gained 0.1 percent to 100.10 after rising to 100.23, the highest since March 16.

Deposit rate

The ECB is forecast to boost stimulus even though it is less than halfway the bond-buying program. More than three- quarters of respondents surveyed by Bloomberg said the ECB will cut its deposit rate from the current minus 0.2 percent.

Options traders have been cutting positions that would benefit from a weaker euro. The premium on one-month contracts giving the right to sell the shared currency over those to buy narrowed to 0.41 percentage point Monday, from as wide as 1.16 percentage points on Oct. 23, data compiled by Bloomberg show.

Fed Chair Janet Yellen is scheduled to address the Economic Club of Washington on Dec. 2 and appear before a congressional committee on Dec. 3, a day before the Labor Department publishes its monthly payroll report for November.

“There is risk for the euro to be bought back if the ECB’s outcome disappoints in light of market expectations,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “U.S. jobs data are key but a December rate increase is considerably priced in already and will not be a surprise.

[Bloomberg]