Euro Extends Slide on ECB Outlook; Asian Stocks, Oil Slip

Frankfurt (Jan 5)  The euro slid to an almost nine-year low against the dollar amid prospects the European Central Bank will embark on large-scale government-bond purchases to ward off deflation. Asian stocks fell with oil as silver climbed.

The 18-nation currency dropped 0.4 percent to $1.1960 by 10 a.m. in Tokyo, after earlier touching its weakest level since March 2006. The greenback gained against 11 of 16 major peers, while the yen advanced. The MSCI Asia Pacific Index (MXAP) sank 0.7 percent, set for its biggest drop since Dec. 23 as Japan’s Topix index slid 1.1 percent after a three-day break. Standard & Poor’s 500 Index futures declined 0.4 percent. Crude fell for a third straight trading day, while silver jumped 1.5 percent.

Speculation European policy makers will have to undertake broad-based quantitative easing intensified over the past few days after ECB chief Mario Draghi said in an interview that he couldn’t exclude the risk of deflation in the region. With anti-austerity parties leading in polls before Greece’s Jan. 25 snap election, Der Spiegel magazine reported that Germany views the southern European nation’s potential exit from the euro area as manageable. Germany may post a slower rate of inflation today, as many markets resume trading after New Year holidays.

“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,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, said by phone. “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.”

Dollar Strength

The euro lost 12 percent in 2014, its worst performance against the dollar since 2005 amid a divergence in euro-region and U.S. monetary policy. While the Federal Reserve wound back its own bond-buying program and floated the prospect of raising interest rates from near zero, the ECB reduced rates and started asset purchases in a bid to stoke economic growth. It reached a low of $1.1864 today.

The pound dropped to its weakest level since August 2013 today and the Swiss franc lost 0.3 percent, while the New Zealand dollar declined 0.4 percent after sinking 1.3 percent Jan. 2. The South Korean won and Malaysian ringgit weakened at least 0.2 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.1 percent today, set for its highest close since March 2009. The yen climbed 0.2 percent to 120.29 per dollar after slipping 0.6 percent Jan. 2. Markit Economics and JMMA release their final reading on the Japan manufacturing purchasing managers’ index for December today.

Asian Indexes

The Kospi index lost 1 percent in Seoul, while Australia’s S&P/ASX 200 Index added 0.3 percent, led by gains in utilities and energy stocks. Markets in Japan, New Zealand, mainland China, the Philippines, Taiwan and Thailand trade for the first time in 2015 today, with Thai and Philippine inflation data due.

Consumer prices data for German regions including Hesse and Bavaria are scheduled along with national figures today. Price growth in the euro-area’s biggest economy probably slowed to 0.3 percent in December from a year earlier, according to economists surveyed by Bloomberg, down from 0.6 percent in November. That would be the weakest reading since 2009. An update on euro region inflation is due Jan. 8.

West Texas Intermediate crude slipped 0.9 percent to $52.23 a barrel after capping a sixth straight weekly loss Jan. 2. Brent crude traded in London fell 1 percent to $55.86 per barrel, with both blends headed for their lowest settlement levels since 2009.

WTI and Brent tumbled more than 40 percent last year as the highest U.S. oil output in about 30 years collided with slowing global demand and OPEC’s reluctance to reduce its own production. Silver advanced to $15.9585 an ounce in the spot market.

Source: Bloomberg