Sydney - The euro was set for its longest stretch of weekly declines versus the yen since the shared currency’s 1999 creation as anticipation builds that the European Central Bank (ECB) will surprise investors with the size of its stimulus package next week.
The 19-nation currency also headed for its biggest monthly loss since March versus the dollar, notching up declines against 14 of 16 major peers.
The euro stayed lower versus the greenback on Friday after data showed industrial confidence in the region deteriorated and Spanish inflation remained negative in November.
Pioneer Investments, which oversees $242bn, said it’s maintaining short-euro positions, or bets the currency will decline, into the ECB’s December 3 meeting.
The prospect of President Mario Draghi cutting the bank’s minus 0.2% deposit rate by 10 basis points is fully priced into futures markets, data compiled by Bloomberg show. A boost to quantitative easing is also widely anticipated.
“While expectations have been high and room to exceed them might be limited, we’re still comfortable going into the December meeting short the euro,” said Andreas Koenig, head of European foreign exchange at Pioneer in Dublin.
“Draghi’s track record is that he has rarely disappointed. He always delivers. Buying euros will be only for correction moves.”
A third of his short-euro position is through euro forwards, with two thirds through options, Koenig said. The make-up of the position reflects the risk Draghi may not be able to exceed market expectations this time around, he said.
Draghi’s pledge
The euro dropped 0.2% on Friday to ¥129.82 as of 12:36, set to complete a seven-week slide of 5%. Europe’s shared currency fell 0.2% to $1.0588, down 0.6% in the week and approaching Wednesday’s seven- month low.
The euro has tumbled 12.5% against the dollar this year, the most in a decade, as the ECB boosts the money supply to stoke lackluster economic growth and stir prices that are barely rising.
Draghi has put markets on notice for further stimulus, saying last week that the institution will do what’s necessary to reach its inflation goal quickly.
Movements in swap rates since the ECB’s last meeting in October indicate that markets need Draghi to deliver at least a 14 basis-point cut to the deposit rate on Thursday, along with an expansion of QE, Australia & New Zealand Banking Group estimates.