Euro Falls to 2-Year Low on Draghi’s Stimulus Pledge

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The euro fell to a more than two-year low as European Central Bank President Mario Draghi deepened his commitment to stimulus and signaled policy makers are ready to implement additional measures if needed.

Europe’s shared currency dropped for the first time in six days versus the yen as Draghi told reporters in Frankfurt that the central bank’s bond-buying program will last at least two years and, together with targeted loans, move its balance sheet toward early-2012 levels. The pound weakened to a 14-month low as the Bank of England left interest rates unchanged. The dollar rose to its highest since April 2009 before jobs data tomorrow. Russia’s ruble slid.

“Draghi’s trying to prepare the market for what he sees as a very likely expanded program of quantitative easing, maybe not in size but in terms of the assets purchased,” said Collin Crownover, the head of currency management at State Street Global Advisors Inc. “The fall in the euro, while not massive in historical terms, has been pretty significant. I think we drift a little bit lower but I think we’ll struggle to touch $1.20 this year.”

The euro fell 0.9 percent to $1.2375 at 5 p.m. New York time and touched $1.2365, the weakest level since August 2012. It declined 0.4 percent to 142.57 yen, having strengthened to a 10-month high earlier in the day. The yen fell 0.5 percent against the dollar to 115.21.

Ruble, Pound

Russia’s ruble was the biggest loser versus the euro and the dollar as speculators probed the willingness of the central bank to intervene in support of the currency. The ruble lost 2.9 percent against the euro and 3.7 percent versus the dollar.

Sterling slid to its lowest since September 2013 against the U.S. currency as the BOE’s Monetary Policy Committee today held the benchmark rate at a record-low 0.5 percent. Minutes of the decision on Nov. 19 will reveal how officials voted. The pound dipped 0.9 percent to $1.5832 and touched $1.5824.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.6 percent to 1,097.86, its highest close since April 2009.

U.S. employers added 235,000 workers in October, according to a Bloomberg News survey of analysts before tomorrow’s Labor Department report. Economists predict the jobless rate held at 5.9 percent, the lowest since July 2008.

Yen Divergence

The Federal Reserve is moving closer to raising interest rates after ending its asset-purchase program last month. By contrast, Japan’s central bank is expanding its monetary base while the ECB has cut interest rates, offered cheap loans to banks and embarked on purchases of some bonds to boost an inflation rate that remains below its target of just under 2 percent.

Morgan Stanley wrote in a note to clients today that, in hindsight, its projections for the yen were “too cautious.” The lender sees an increasing risk that dollar-yen will approach 120 per dollar “much sooner.” The currency last reached that level in July 2007.

The firm forecasts the yen to trade at 114 per dollar by the end of 2015. The median estimate among strategists and economists surveyed by Bloomberg is 115 by that time.

Trading in over-the-counter foreign-exchange options on dollar-yen accounted for 21 percent of trades today, according to Depository Trust Clearing Corp. data. Euro-dollar dominated trade, accounting for 30 percent of volume.

Quantitative Easing

The euro has fallen 10 percent against the dollar since Dec. 31, set for its biggest annual drop since 2005. The currency is more likely to fall further after today’s policy meeting as the ECB expands its balance sheet, Andrew Bosomworth, a money manager at Pacific Investment Management Co., wrote in an e-mailed note today.

The 18-nation currency slid today as Draghi said ECB policy makers, who kept borrowing costs at a record low today, are unanimous in their commitment to expand stimulus should subdued inflation make it necessary. The council “has tasked relevant euro system committees with the timely preparation of further measures to be implemented if needed,” he said.

The central bank “is clearly strengthening its commitment to do more if needed relative to market expectations,” said Valentin Marinov, London-based head of European Group of 10 currency strategy at Citigroup Inc., the world’s biggest foreign-exchange dealer. “That’s euro negative.”

While the ECB’s stimulus program envisages buying asset-backed securities and covered bonds, the central bank hasn’t committed to broad-based bond buying, or quantitative easing.

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