Euro drops to nine-year low as easing expectations mount

14/01/2015 07:19 AST

The euro plunged to a nine-year low against the dollar on Tuesday after a senior European Central Bank policymaker urged the ECB to go ahead with its proposed stimulus measures and revitalize a slumping euro zone economy.

The euro has fallen in seven of the last eight sessions and was on pace for a sixth straight week of losses.

ECB Governing Council member Ewald Nowotny said in a newspaper interview that the ECB should decide sooner rather than later whether to start large-scale purchases of government bonds.

The euro fell as low as $1.1752, its lowest since December 2005, and was last down 0.5 percent at $1.1772.

"People are just happy selling the euro going into the ECB meeting next week," said Vassili Serebriakov, currency strategist, at BNP Paribas in New York. "Nowotny has been more dovish than we expected and he's not really a dove."

Investors expect the ECB to launch its own quantitative easing at next week's meeting, as data out of the euro zone has become bleaker and bleaker by the day.

Data from Greece showed its economy was mired in deflation while engineering orders in Germany fell 10 percent year-on-year in November.

Deutsche Bank, in a research note on Tuesday, revised downward its forecast on the euro. The bank now sees the euro falling to $1.10, $1.00, and $0.90 by the end of 2015, 2016, and 2017 respectively.

Against the yen, the dollar fell for a third straight session, dropping 0.5 percent to 117.73 yen in late trading. It earlier sliding to a four-week low.

BNP's Serebriakov said there has been risk aversion surrounding geopolitical tensions in the Middle East that has resulted in safe-haven bids for the yen.

The dollar index rose 0.3 percent to 92.257, still benefiting overall from more upbeat U.S. economic prospects compared with the rest of the world that should keep the Federal Reserve on track to raise rates this year.

In contrast to the euro, the greenback has risen in seven of the last eight sessions against a currency basket and is on track for a fourth straight week of gains.

Some investors, however, have started to question the wisdom of raising rates at all given a global drop in inflation partly caused by the near 60 percent slide in oil prices since June. On Tuesday, crude oil prices fell to near six-year lows.

Reuters