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Sydney - The euro hit a nine-year trough on Wednesday as collapsing oil prices and worries about the world economy drove skittish investors into the arms of safe-haven sovereign debt.
From Japan to Germany to Australia, government borrowing costs reached all-time lows as oil fell 10% in just two days and investors wrestled with the risk of global deflation.
Asian share markets did try to steady after recent steep falls and European bourses were projected to open a shade firmer, but the gains were hostage to euro zone inflation data due later Wednesday.
The figures are expected to show the first annual fall in consumer prices since 2009, piling pressure on the European Central Bank to launch all-out quantitative easing at its next policy meeting on January 22.
"We expect the ECB to announce a sovereign QE programme on January 22, and the first purchases to probably start in the following week," said Citi economist Guillaume Menuet.
"Given the sizeable decline in market-based inflation estimates and the likelihood of a negative print for the December flash estimate, we doubt that the ECB will choose to wait," he added. "Investors would probably react very negatively to a “no QE” announcement."
Investors were busy selling the euro in anticipation of more money-printing by the central bank, pushing the single currency to a fresh low of $1.1842 in Asian trade before steadying at $1.1875.
The euro also dropped to ¥140.58, a low last seen in early November. The dollar fared better, bouncing to ¥119.05 from a low of ¥118.04 touched on Tuesday.
German plans
Not helping the euro was a report Germany was making contingency plans for the possible departure of Greece from the eurozone.
Tabloid newspaper Bild cited unnamed government sources saying Berlin was running scenarios for the January 25 Greek election in case of a victory by the leftwing Syriza party.
Equity markets were finding some support in Asia after a run of torrid sessions. Japan's Nikkei edged up 0.2% after suffering the largest one-day drop in 10 months the previous days.
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3%, while markets in South Korea and China were all but flat.
On Wall Street, the three major stock indexes had fallen for a fifth straight session on Tuesday, marking the longest losing streak since late 2013 for the S&P 500.
The Dow shed 0.75%, the S&P 500 0.9% and the Nasdaq 1.29%.
Shrinking yields
Overshadowing sentiment were worries about what the breakneck decline in oil would mean for earnings of oil companies and disinflationary pressures worldwide.
Brent eased another 17 cents to $50.93 a barrel having already shed almost 10% so far this week. US crude dipped 13c to $47.80, after plumbing an April 2009 low of $47.55.
With fears of deflation rampant, yields on longer-dated Japanese, German, French, Dutch, Austrian, Belgian, Finnish, Canadian and Australian bonds all touched record lows.
Investors also pushed back the day when the Federal Reserve might be able to hike US interest rates. Fed fund futures imply no chance of a hike by June and only one rise to 0.5% by year end.
Minutes of the Fed's last policy meeting are due later Wednesday and should expand on where members felt rates were heading.
Even if the Fed sticks to its current timetable and moves around mid-year, markets are wagering it will be so far ahead of the curve that inflation will remain permanently low.
As a result, investors are willing to accept less compensation for inflation risk over time, so pulling down yields on even the longest dated bonds.
Yields on US 30-year paper dived to 2.471% to be just a whisker above their all-time trough of 2.443%. The 10-year note yielded 1.94% having fallen 23 basis points in just three sessions.
