Dollar Beats All as Euro Touches 4 1/2-Year Low; Franc at Parity

ECB President Mario Draghi
European Central Bank President Mario Draghi said he can’t exclude the risk of deflation and signaled the likelihood of quantitative easing is increasing. Photographer: Martin Leissl/Bloomberg

The dollar continued its world-beating ways on speculation the Federal Reserve will raise interest rates this year while other central banks extend stimulus measures.

The U.S. currency climbed versus all of its 16 major peers in 2014 and extended those gains today as two manufacturing gauge signaled expansion. The euro slumped to a 4 1/2-year low after European Central Bank President Mario Draghi said he can’t exclude the risk of deflation and signaled the likelihood of quantitative easing is increasing. The Swiss franc weakened to parity with the dollar for the first time in four years and the pound fell as U.K. factory output slowed.

“Today’s the first trading day of the year in the U.S. and the dollar’s strong,” Jonathan Lewis, a money manager at New York-based Samson Capital Advisors LLC, said by phone. For the euro, “what’s greatly influencing the currency’s selloff today are the Mario Draghi comments about QE.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.9 percent to 1,141.02 at 5 p.m. New York time, its highest close since March 2009. The gauge increased 11 percent last year, the biggest gain in data going back to 2005.

The U.S. currency advanced 0.8 percent to $1.2002 per euro after appreciating to $1.2001, the strongest level since June 2010. It gained 0.6 percent to 120.50 yen. The euro rose 0.2 percent to 144.63 yen.

Financial markets were closed today in China, Japan, New Zealand, Philippines, Taiwan and Thailand.

Real, Aussie

The Australian and New Zealand dollars dropped as a Chinese manufacturing gauge slipped to the least in 18 months. The China Federation of Logistics and Purchasing said yesterday its purchasing managers’ index fell to 50.1 in December from 50.3 the previous month.

The Aussie slid 1.2 percent to 80.89 U.S. cents and the kiwi fell 1.3 percent to 77 U.S. cents.

The franc declined 0.8 percent and touched 1.0019 per dollar, its weakest level since December 2010. It dropped 10 percent in 2014.

Britain’s pound slid as Markit Economics said its U.K. manufacturing measure fell to 52.5 from a revised 53.3 in November. A reading above 50 indicates expansion. Economists forecast the gauge would rise to 53.6 from a previously reported 53.5 in November, according to the median estimate in a Bloomberg News survey.

Draghi’s View

Sterling slid 1.7 percent and touched $1.5328, the weakest level since August 2013. The currency depreciated 0.8 percent to 78.30 pence per euro.

The euro, which dropped for the past six straight months, extended its decline as Draghi was quoted by German newspaper Handelsblatt saying the risk that the ECB won’t be able to fulfill its mandate of price stability is higher than it was six months ago.

“We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary,” Draghi was cited as saying.

Euro-area manufacturing expanded less than initially estimated in December, London-based Markit said today, with the final reading of a gauge for the industry at 50.6, below an estimate released on Dec. 16.

Lithuania Joins

The euro has fallen 2.1 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 13 percent, while the yen weakened 3.1 percent.

Lithuania became the 19th member of the single European currency bloc yesterday.

Draghi “again opened the door for full QE in the euro zone, so that’s weighing on the euro rate against the U.S. dollar,” Ralf Umlauf, head of research for Helaba’s trading floor in Frankfurt, said by phone.

The dollar gained after Markit Economics’ U.S. manufacturing index was 53.9 in December, from an earlier reading of 53.7, according to a report published today. The Institute for Supply Management’s factory index was at 55.5 last month from 58.7 in November.

The Fed will raise borrowing costs in less than eight months, versus a prediction of almost 13 months in October, based on data from Morgan Stanley.

“It’s all about continued improvement in the U.S. and whether that first Fed rate hike is moved forward,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “Then there’s the anticipation of the ECB launching an easing program.”

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