EUR falls to nine-year low vs. USD

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The euro fell to its lowest level in almost nine years against the dollar on Monday, amid speculation the European Central Bank will soon expand its stimulus programs aimed at avoiding deflation as the region’s economy struggles to grow, reports.

Analysts say ECB President Mario Draghi is under pressure to take further measures like large-scale purchases of government bonds, a policy known as quantitative easing, which could add around EUR 1 trillion to the central bank’s approximately EUR 2 trillion-balance sheet. This pushes yields down, which move inversely to bond prices, and lessens the attraction of the euro. The central bank’s governing council’s next monetary policy meeting is in two weeks on Jan. 22.

“Time is running out for the ECB” to announce further quantitative easing measures, said Mitul Kotecha, head of foreign exchange strategy for Asia Pacific at Barclays in Singapore. The firm forecasts the euro EUR/USD, -0.65% falling to USD 1.17 against the U.S. dollar by the end of the first quarter and to USD 1.07 by the end of the year.

The euro fell as low as USD 1.1861 against the U.S. dollar in early trading Monday — its lowest level since March 2006 — and was last at USD 1.1940.

The euro’s weakness has been exacerbated by the U.S. dollar’s broad-based strength, which has pressured currencies across the board. The greenback DXY, +0.13% rose to its strongest in 11 years against major currencies last week, as investors globally bet on a recovery in the U.S. economy. On Monday, the British pound GBPUSD, -0.37% also fell to its lowest in 17 months against the dollar.

Traders and analysts are also waiting for consumer-price-inflation data out of Europe on Wednesday, which is expected to fuel fears about ongoing deflationary pressure.

After Draghi hinted at further easy-money policies for the eurozone in an interview published last week, the euro fell by as much as 0.86% Friday. Losses accelerated Monday with the currency down by more than 1% in early Asia trade, after the euro breached the USD 1.20 level.

A report in Saturday’s edition of German news magazine Der Spiegel cited unnamed sources saying the German government is confident the eurozone would cope with a Greece exit if it was needed.

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