Euro Drops as Lackluster Growth Boosts ECB-Stimulus Speculation

  • Dollar gains versus most peers before U.S. retail-sales report
  • Euro-region economy expanded 0.3 percent last quarter

The euro weakened as data showing growth in the currency bloc unexpectedly slowed in the third quarter boosted speculation the European Central Bank will cut its deposit rate and expand its asset-purchase program next month.

The 19-member shared currency dropped toward a six-month low against the dollar as the data highlighted the possibility the ECB will bolster its stimulus program next month even as the Federal Reserve looks set to raise interest rates. ECB President Mario Draghi said Thursday that quantitative easing will be extended if needed. The dollar climbed versus most of its 16 major peers before a report economists said will show retail sales in the U.S. increased last month.

“Today’s European data will support Draghi’s dovish tone,” said Peter Rosenstreich, head of market strategy at Swissquote Bank SA in Gland, Switzerland. “The monetary policy divergence theme between the U.S. and Europe has been on show this week. This U.S. retail sales number could be big in further supporting a December rate hike but also trigger a conversation of a steeper Fed rate path.”

The euro dropped 0.2 percent to $1.0791 at 7 a.m. New York time. It touched $1.0675 on Nov. 10, the lowest since April 23. The shared currency fell 0.2 percent to 132.27 yen, while the dollar was little changed at 122.59 yen.

While the start of the ECB’s 1.1 trillion-euro bond-buying program in March pushed the euro to the weakest level since 2003, policy makers are still seeking a silver bullet to push inflation up from zero and encourage growth. The Governing Council is set to hold its final policy meeting of the year in Frankfurt on Dec. 3.

Gross domestic product in the euro region rose 0.3 percent in the three months through September, data showed Friday, down from 0.4 percent in the previous period, which was also the median estimate of analysts in a Bloomberg survey. The German and French economies each grew 0.3 percent, while Italy’s expanded 0.2 percent.

The euro has whipsawed against the dollar this week as investors weigh how much further central bank policy divergence can bolster the greenback. The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, headed for a 0.5 percent weekly slide, the biggest since early October, while the euro was set for its first weekly advance in five.

“From a positioning perspective, yes, the central banks are encouraging, so go for it, sell the euro,” Derek Halpenny, the London-based head of European markets research at Bank of Tokyo-Mitsubishi UFJ Ltd, said in an interview on Bloomberg Television’s “Surveillance” with Francine Lacqua. “But ultimately if you go in unfavorable market conditions, that doesn’t work out.”

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