Euro falls to lowest since March

Tokyo - The euro fell to its lowest since March after Mario Draghi signaled Thursday quantitative easing won’t come to an “abrupt” end, leaving traders waiting until at least December for news about policy changes.

The single currency headed for a third weekly loss after the European Central Bank (ECB) president said neither tapering nor an extension of bond-buying stimulus was discussed at a monetary meeting that ended that day.

It has slipped 2.9% this month, after trading in its tightest quarterly range against the greenback on record in the three months through September. The euro may drop another 0.7%, according to Matt Simpson, a senior market analyst at ThinkMarkets in Singapore.

“It’s a double-whammy from the ECB meeting,” Simpson said. “Draghi didn’t talk tapering and suggested easing in December. That’s got traders pricing in a weaker euro.”

The euro dropped 0.2% to $1.0909 as of 08:19, after falling to as low as $1.0896, the weakest level since March 10. It has fallen 0.6% this week. Simpson predicts it will weaken toward $1.0830.

Europe’s unprecedented QE plan was designed to spur inflation and economic growth. Stimulative monetary policy tends to weaken a currency, potentially benefiting a sluggish economy by making exports cheaper and boosting consumer prices.

Draghi said on Thursday that an abrupt end to QE was unlikely. The ECB left interest rates and its bond-buying plan unchanged, as predicted by economists in a Bloomberg survey.

Dollar factor

“Arguably the market’s concerns about tapering from next April or an abrupt end to QE have eased a little post-ECB,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank in Sydney.

“But we also have a slightly firmer dollar on our hands, and I suspect the drop in the euro-dollar rate is as much to do with that as anything else.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.1%. Futures traders are pricing about a 68% probability that the US central bank will lift interest rates by December, up from 66% at the end of last week. The greenback measure has declined 0.1% since October 14, halting a two-week advance.

Australia & New Zealand Banking predicts the euro can drop below $1.05 in the coming months amid an outlook for higher US rates and political risks from an Italian referendum and elections in Netherlands, France and Germany, Brian Martin, its head of global economics, wrote in a note. Deutsche Bank and Toronto-Dominion Bank also expect euro weakness to gather momentum into year-end.

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