Euro Declines to Nine-Year Low on Stimulus Outlook; Ruble Drops

The euro fell to a nine-year low as officials fueled speculation that the European Central Bank will begin buying government bonds as early as next week to stave off deflation.

A gauge of the dollar gained to almost the highest in a decade on bets the Federal Reserve will raise interest rates this year. Richard Clarida of Pacific Investment Management Co. said he sees the euro falling to parity. The shared currency slid after a Greek official said the nation may exit the currency union as the opposition party holds a slim lead heading into elections. Sweden’s krona climbed versus the euro as consumer prices fell less than analysts estimated. Russia’s ruble dropped with oil.

“The euro has been pressured by several factors, including prospects of central-bank policy action and concerns regarding political developments in Greece,” said Sireen Harajli, a Mizuho Bank Ltd. strategist in New York. “It seems that there is very little to support the single currency.”

The euro dropped 0.5 percent to $1.1773 at 5 p.m. New York time and touched $1.1753, the weakest level since 2005. Europe’s common currency fell 0.9 percent to 138.83 yen. The yen rose 0.4 percent to 117.93 per dollar after reaching 117.54, the strongest since Dec. 17.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, appreciated 0.2 percent to 1,142.87. It closed at 1,147.54 on Jan. 8, the highest in data going back to 2004.

Oil Slides

Brent crude oil for February settlement slid as much as 4.7 percent to $45.19 a barrel in London and traded lower than West Texas Intermediate for the first time in 1 1/2 years. Oil slumped almost 50 percent last year, the most since the 2008 financial crisis.

The currency of Russia, the world’s biggest energy exporter, matched that plunge with its own 46 percent slide against the dollar last year. Today the ruble weakened 3.2 percent to extend its slide this year to 7.2 percent, the most among 31 major currencies tracked by Bloomberg.

Sweden’s krona advanced for the first time versus the shared currency since Jan. 6 as consumer prices fell an annual 0.3 percent in December, according to Statistics Sweden, less than the 0.5 percent decline predicted in a Bloomberg survey of analysts. Assuming constant interest rates, inflation was 0.5 percent, beating the 0.2 percent estimate.

The krona was 0.6 percent stronger at 9.4997 versus the euro and little changed at 8.0708 against the dollar.

Euro Parity

The euro fell after ECB Governing Council member Ewald Nowotny said during a panel discussion late yesterday in Vienna that policy makers must treat the threat of deflation seriously and shouldn’t delay a response. Executive Board member Benoit Coeure was quoted in an interview with Die Welt that the ECB is “in a position to take a decision on Jan. 22.”

Clarida, executive vice president at Newport Beach, California-based Pimco, said the central bank may act as soon as next week.

“They’ll probably announce a big program, perhaps 500 billion euros ($588 billion), to buy sovereign bonds in the secondary market,” he said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene. For the euro, “the next technical is parity. There’s a lot more downside.” He didn’t specify a time frame.

Greek Election

Greek Finance Minister Gikas Hardouvelis said the nation could exit the euro zone by accident if a new government led by Syriza fails to reach an agreement with international creditors soon after this month’s election.

“An accident could happen, and the whole idea is to avoid it,” he said in a Bloomberg Television interview in Athens yesterday.

The euro has fallen 2.5 percent in the past month against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, as the dollar gained 3.9 percent, reflecting the divergence in policy outlook between the ECB and the Fed.

The ECB cut its deposit rate to less than zero for the first time in June and lowered its refinancing rate to 0.05 percent, while the Fed has signaled it is moving toward increasing borrowing costs.

“Given all of the ECB chatter, it is hard to see them not giving the market something next week -- even if they need more time to iron out the details,” said Matt Derr, a foreign-exchange strategist in New York at Credit Suisse Group AG. “And with the Greek election and the polls not moving much, it just adds to euro weakness.”

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