Euro Drops as Draghi QE View Diverges From Fed Tightening Stance

  • ECB chief says willing to use `all instruments available'
  • Chances of Fed raising rates in December climbs in recent days

The euro declined against the dollar for a second day as the prospect of further monetary easing in Europe contrasted with speculation the Federal Reserve will increase interest rates at its December meeting.

The single currency weakened against 14 of its 16 major peers after European Central Bank President Mario Draghi reiterated on Tuesday the ECB will consider increasing stimulus at its December meeting. He said the central bank was “willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation.”

Investors will now turn their attention to Fed Chair Janet Yellen, who is scheduled to address the U.S. Congress on Wednesday. This will be her first speech since she said last month that the central bank could still raise rates at its Dec. 15-16 meeting.

“It’s all about the interest rate outlook,” said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. “The market seems willing to sell the euro, come what may. If the U.S. data is a little bit soft or European data isn’t too bad, it doesn’t make any difference. Everything is irrelevant aside from that interest-rate story.”

He said there was “certainly no obvious upside pressure to the euro.”

The euro fell 0.4 percent to $1.0925 as of 6:45 a.m. New York, after declining 0.5 percent in the previous session. The 19-member currency dropped 0.2 percent to 132.44 yen. The Japanese currency weakened 0.1 percent to 121.21 per dollar.

Druckenmiller View

Stan Druckenmiller, who boasts one of the best investor track records over the past three decades, said he’s betting against the euro again, at a conference on Tuesday in New York. He produced average annual returns of 30 percent from 1986 through 2010 at his Duquesne Capital Management.

The euro will depreciate toward $1.05 by year-end as the ECB will potentially boost its asset-purchase program and cut its deposit rate, said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. The yen is poised to weaken to 124 per dollar by the first quarter as the central bank is set to add to its unprecedented stimulus next year, he said.

New Zealand’s dollar dropped for a third day, after a government report showed employment fell in the third quarter and the jobless rate climbed.

The kiwi weakened 0.4 percent to 66.41 U.S. cents after tumbling 1.2 percent in the previous session.

Fed Probability

Traders see a 52 percent chance the Fed will boost interest rates from near zero by its December meeting, up from 34 percent odds on Oct. 26, the day before the central bank last met. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after the first increase, compared with the current range of zero to 0.25 percent.

Fed officials scheduled to speak on Wednesday include Yellen, Vice Chairman Stanley Fischer and New York Fed President William C. Dudley.

(The previous version of this story was corrected to show when the New Zealand dollar declined 1.2 percent.)

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