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Singapore - The euro was near the weakest in seven months against the dollar and yen as investors speculated the European Central Bank (ECB) will expand stimulus when it meets next week.
The 19-nation currency is heading for its biggest monthly decline against the greenback since March amid a divergence in monetary policy as the Federal Reserve considers raising interest rates for the first time in almost a decade. The Bank of Japan (BoJ) maintained its record easing policy in place last week.
Australia’s dollar weakened after business investment fell the most on record.
“We expect the ECB will cut the deposit rate by more than the market expects next week,” said Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group in Singapore. “This should keep the euro a sell on rallies into the meeting and allow the euro to test $1.05 if the ECB meets our expectations.”
The euro was little changed at $1.0621 as of 08:45 after sliding to $1.0566 on Wednesday, the weakest since April 14.
The single currency slipped 0.2% to ¥130.20 after depreciating to ¥129.78 on Wednesday, the lowest since April 28. The dollar was at ¥122.59 from ¥122.74 in New York. US financial markets are shut on Thursday for Thanksgiving.
The euro has fallen 3.5% versus the dollar this month, the worst-performing Group-of-10 currency after the Danish krone. The yen has declined 1.6%.
“We will do what we must to raise inflation as quickly as possible,” ECB President Mario Draghi said last week. Inflation is “very low,” Vice President Vitor Constancio said in an interview Wednesday.
‘Dovish surprise’
The euro may continue to decline before the ECB’s December 3 meeting with a risk it will drop as low as 95 cents by March 31, aided by rising US interest rates, according to Goldman Sachs Group.
“The hurdle is low for a dovish surprise on December 3,” Robin Brooks, Goldman Sachs’s New York-based chief currency strategist, wrote in a research note dated November 25. “As risk- taking resumes in January, the divergence trade should pick up steam.”
Futures indicate a 72% chance the Fed will boost its benchmark by its December 15 to December 16 meeting, according to data compiled by Bloomberg. The calculation assumes the effective fed funds rate averages 0.375% after the first increase, compared with the current range of zero to 0.25%.
Australia’s dollar dropped for a second day after the Bureau of Statistics said business investment slumped 9.2% in the third quarter, the largest decline in records going back to 1989, according to calculations by Bloomberg.
“Aussie will remain heavy on this report, though we note it has remained resilient to weak commodity prices in the past few weeks,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney.
The Australian dollar fell 0.3% to 72.31 USc. The Aussie is the only G-10 currency to appreciate versus the greenback this month, strengthening 1.3%.
