The euro’s slump pushed it toward its biggest ever quarterly decline versus the dollar as European Central Bank purchases of sovereign debt sent bond yields to record lows across the region.
The shared currency has weakened 12.8 percent this year, with almost three weeks before the quarter ends, eclipsing the 10.6 percent decline during the credit crunch in the third quarter of 2008. The euro dropped to an almost 12-year low Wednesday as ECB President Mario Draghi reiterated the central bank’s commitment to boost inflation, while the 1.1 trillion-euro ($1.2 trillion) quantitative-easing program entered its third day. Demand for U.S. Treasuries surged.
“It has been a pretty sharp move,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said by phone. “It’s just going back to these broader market themes of expected Fed tightening in the U.S. and continued monetary easing in the euro zone. That’s also been reflected in bond markets.”
The euro dropped 1.4 percent to $1.0547 at 5 p.m. New York time and reached $1.0511, the weakest level since March 21, 2003. The 19-nation common currency depreciated 1.2 percent to 128.10 yen, having touched 127.63 yen, the lowest since June 2013.
“The asset-purchase program, which is starting now, that’s obviously going to drive the euro lower,” said Fabian Eliasson, head of U.S. corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The dollar is just crushing it across the board.”
Gains by euro-area government debt on Wednesday pushed yields to record lows after policy maker Benoit Coeure said in a speech the previous day that while there’ll be a scarcity of bonds to purchase, there’ll still be enough for the central bank to meet its targets.
French 10-year yields below 0.5 percent for the first time and yields fell to records from Spain and Italy to Finland and Austria. The yield on German five-year notes dropped to a record-low minus 0.125 percent, while U.S. Treasuries with a similar maturity yielded 1.60 percent.
Treasuries advanced for a third day as the first auction of 10-year notes since the ECB began buying sovereign bonds drew almost the highest demand in three years from investors including foreign central banks.
“There’s clearly a lot of money in Europe that has scope to move overseas,” said Shahab Jalinoos, the global head of foreign-exchange strategy at Credit Suisse Group AG in New York “I would imagine that demand from overseas will be very strong for U.S. debt.”
The ECB intends to buy 60 billion euros a month of private and public debt through September 2016, in a policy that typically debases currencies by increasing the amount of money in circulation.
“We can deploy and we will deploy monetary policy in a way that can and will stabilize inflation in line with our objective,” Draghi said at a conference in Frankfurt.
The Bank of Japan is far from done driving down the yen if it wants to secure its 2 percent inflation target next year, a survey of economists by Bloomberg News shows. The median estimate of 27 economists in the March 5-10 survey suggests that the yen needs to fall to 140 per dollar, a level last seen in 1998, to help the central bank meet its goal. The yen weakened 0.3 percent to 121.45 per dollar on Wednesday.
The euro has slumped 7.6 percent this year, the most among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar, the best performer, has gained 7.6 percent and the yen advanced 6 percent.
The dollar has outperformed its major peers this year as the Federal Reserve considers the timing of its first interest-rate increase since 2006.