Euro Falls on View ECB Stimulus to Contrast With Fed

  • Dollar climbs as Chinese data fuel bets Fed will raise rates
  • Markets anticipate tone of ECB President Draghi on Oct. 22

The euro fell for a third day, its longest stretch of losses this month, on speculation European Central Bank President Mario Draghi will consider adding to monetary stimulus.

The single currency weakened against eight of 16 major peers even after ECB Governing Council member Ewald Nowotny signaled officials, who next decide on policy Oct. 22, won’t expand quantitative easing anytime soon. The Bloomberg dollar index rose a third day after a report showing China’s economy expanded quicker than forecast strengthened the case for the Federal Reserve to raise interest rates in 2015.

“There are still expectations certainly building for some more easing -- that is part of what is weighing on the euro,” said Christin Tuxen, a senior analyst at Danske Bank A/S in Copenhagen. Tuxen expects the common currency to rise to $1.20 in the next 12 months in part because the European economy benefits from ECB stimulus.

The euro fell 0.2 percent to $1.1325 as of 1:25 p.m. New York time, extending its drop since Oct. 14 to 1.3 percent. Europe’s 19-nation currency slid 0.2 percent to 135.29 yen. The dollar was little changed at 119.45 yen.

ECB officials are likely to say by year-end that they have no choice but to add stimulus, and may even reach that conclusion as soon as Thursday, according to economists in a Bloomberg survey. A report last week showed the euro area’s inflation rate turned negative in September for the first time in six months, increasing pressure on the central bank to add to its 1.1 trillion-euro ($1.3 trillion) asset-purchase plan.

Draghi Wait

Markets are “probably waiting to see what the tone of Draghi’s statement and press briefing is on Thursday, whether he actively encourages talk of additional easing to try and encourage a slightly cheaper euro,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

When Fed officials opted in September to leave their benchmark interest rate near zero, where it’s been since 2008, they cited risks to U.S. growth and inflation from China’s economic slowdown. China’s gross domestic product rose 6.9 percent in the three months through September from a year earlier, according to the National Bureau of Statistics. That beat analysts’ estimates for 6.8 percent.

“It will certainly make the Fed more confident to deliver the hike,” said Tuxen at Danske.

Futures traders see less than a one-in-three chance of an increase by December, according to Bloomberg data, assuming the effective fed funds rate will average 0.375 percent after the first boost. The probability is down from 43 percent at the start of the month.

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