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Sydney - The euro was cracking under pressure on Wednesday as feverish speculation of further policy stimulus in the eurozone drove bond yields to all-time lows and lifted Asian stocks to peaks not seen in almost seven years.
The groundbreaking call by European Central Bank (ECB) president Mario Draghi for more action on both the monetary and fiscal fronts has markets wagering that fresh steps could come as soon as next week when the central bank's governing council meets.
"The comments have raised expectations that the ECB could announce even more monetary policy stimulus over coming months," said Peter Dragicevich, a senior currency and rates strategist at Commonwealth Bank of Australia. "The next programme could include broad-based asset purchases."
He said that eurozone inflation data due on Friday was likely to show a new low for this cycle of just 0.3 percent and add to the sense of urgency on policy.
"This will continue to depress swap rates across the curve and keep the euro heavy."
The single currency broke down to an 11-month low of $1.3154 in Asia, taking it nearer to the September 6 trough of $1.3104 which also doubles as major chart support.
The euro's weakness helped lift the US dollar index through its September peak to reach its highest in 13 months at 82.698.
The greenback could only manage a minor gain on the yen to ¥104.07, short of Monday's 7-month peak at ¥104.49.
The prospect of yet further lashings of liquidity in Europe was taken as a positive for emerging markets and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.4 percent to its loftiest since January 2008.
After a solid start Japan's Topix was stalled by stiff chart resistance in the 1 290/1 300 zone where it has peaked a number of times in the past.
In Europe, financial spreadbetters predicted a pause after recent gains with the FTSE 100, DAX and CAC 40 all expected to open a shade lower.
On Wall St the S&P 500 had ended Tuesday above the 2 000 mark for the first time, adding 0.11%. The Dow firmed 0.17% and the Nasdaq 0.29%.
Euro yields nosedive
Investors were cheered by solid data with the Conference Board measure of consumer confidence rising to its highest level since October 2007.
Durable goods orders jumped a massive 22.6% thanks entirely to bumper demand for Boeing aircraft, while upward revisions to past data suggested business investment was stronger than first thought.
That was in stark contrast to a run of grim economic news in Europe which saw yields on 10-year German debt reach a record closing low of 0.943% on Tuesday.
The rally on the periphery has been even larger with 10-year yields down 8 basis points on Spanish bonds and 5 basis points on Italian debt.
Spain already pays less than the United States to borrow and Italy is about to be granted that privilege.
Markets also kept a wary eye on developments in Ukraine after Russian President Vladimir Putin met Ukraine's Petro Poroshenko for two hours of one-on-one talks after six hours of wider negotiations with European Union officials.
Poroshenko said a "roadmap" would be prepared to agree to a ceasefire as soon as possible in east Ukraine, while Putin emphasised it was up to Kiev to work out conditions with separatist rebels.
In commodities, gold was hovering at $1 283.60 an ounce after failing to sustain a bounce to $1 290.80.
Oil prices were steadier for the moment after their long decline. Brent crude inched up 24 cents to $102.74 a barrel, while US crude rose 4 cents to $93.90.
