The euro flirted with a two-year trough against the dollar on Monday as investors gave the currency a wide berth on prospects of more easing from the European Central Bank.
ECB President Mario Draghi on Friday threw the door wide open for more drastic measures as he painted a bleak picture of the 18 countries in the euro bloc, stressing that “excessively low” inflation had to be raised quickly.
Euro bears were swift to react to his comments on Friday, knocking the currency to a low of $1.2375 EUR= from a session high of $1.2569. Selling continued in early Asian trade on Monday, with the euro slipping towards $1.2359, just a whisker away from a two-year low of $1.2358 plumbed earlier in the month.
The euro later came off its low and last traded near $1.2388, steady from late U.S. trade on Friday.
“The market appears to be pricing in some expectation of sovereign quantitative easing at the next ECB meeting in two weeks,” said Greg Moore, senior currency strategist at RBC Capital Markets.
Against the yen, the euro eased 0.1 percent to 145.87 yen EURJPY=R, having dropped from a high of 148.43 on Friday.
Later on Monday, a report on German business sentiment by the Munich-based Ifo think-tank will take center stage.
The dollar eased 0.1 percent to about 117.73 yen JPY=. The greenback had set a seven-year high of 118.98 yen last week, having rallied roughly 10 yen since the Bank of Japan’s surprise monetary easing in late October.
The dollar had slipped against the yen on Friday after Japanese Finance Minister Taro Aso said the yen’s recent fall was “too rapid” and undesirable.
A near-term focal point for the dollar’s outlook against the yen will be possible comments from Japanese lawmakers on issues such as currencies and monetary policy ahead of an election in Japan next month, said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
Japanese Prime Minister Shinzo Abe dissolved parliament’s lower house on Friday for a snap election on Dec. 14, seeking a fresh mandate for his struggling “Abenomics” revival strategy.
The euro nursed heavy losses versus the Australian dollar, which climbed after China surprised with an interest rate cut on Friday. It traded at A$1.4247 EURAUD=R after shedding nearly 2 percent on Friday.
On the U.S. dollar, the Aussie rose 0.3 percent to $0.8694 AUD=D4, after having climbed 0.6 percent on Friday. Investors were forced to unwind some short positions in the Aussie after Beijing cut rates for the first time in more than two years.
Bank of Tokyo-Mitsubishi UFJ’s Ino said downside risks to the Aussie dollar have probably diminished at least in the short-term, with a drop toward $0.8400 looking less likely. The Aussie dollar had fallen to $0.8540 in early November, its lowest in more than four years.
“It will probably lend some support,” he said, referring to China’s rate cut. The Australian dollar’s outlook, however, will also hinge on the performance of the U.S. dollar and commodities prices, Ino added.
China’s yuan opened at 6.1280 per dollar on Monday, softening slightly from Friday’s close after the central bank cut benchmark lending rates by 40 basis points.
The People’s Bank of China set the midpoint rate weaker at 6.1420 per dollar prior to market open, compared to 6.1387 per dollar at the previous fix. The spot rate is currently allowed to trade 2 percent above or below the midpoint.
Sources involved in policy making said China’s leadership and central bank were ready to cut rates further and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses.
Source : Reuters
