Euro Has Worst-Ever Run of Weekly Losses Versus Yen Before ECB

  • Single currency competes seven-week drop on stimulus bets
  • Pioneer Investments says it's positioned for weakness

The euro posted its longest stretch of weekly losses versus the yen since the shared currency’s 1999 creation as the European Central Bank prepares to meet.

The 19-nation currency has fallen versus 13 of its 16 major peers this month, and is headed for its biggest monthly slide since March against the dollar, after ECB President Mario Draghi put markets on notice for additional monetary easing at the Dec. 3 meeting.

Further stimulus may help the region’s central bank bolster sluggish inflation, with Draghi saying last week that the institution will do what’s necessary to quickly lift price gains toward its goal. Investors are selling the euro in preparation, as anticipation builds that policy makers will try to surprise markets with a package of stimulus encompassing both significant rate cuts and further quantitative easing.

“What we’ve seen as euro-dollar’s drifted lower is a growing flirtation with the idea that, once again, they’re going to be able to out-deliver market expectations,” said Daragh Maher, head of U.S. foreign-exchange strategy at HSBC Holdings Plc in New York. “The irony of that is that as you anticipate being out-delivered then, of course, your expectation of what constitutes out-delivery gets bigger and bigger, so that’s a risk to the topside for euro-dollar.”

The shared currency was little changed at 130.09 yen as of 5 p.m. in New York. It has dropped about 5 percent during the past seven weeks. The euro fell 0.2 percent to $1.0593, down 0.5 percent on the week, and reached a seven-month low on a closing basis.

Draghi’s Pledge

The euro has tumbled 12 percent against the dollar this year, the most in a decade.

Movements in swap rates since the ECB’s last meeting in October indicate that markets are looking for Draghi to deliver at least a 14 basis-point cut to the deposit rate on Thursday, along with an expansion of QE, Australia & New Zealand Banking Group Ltd. estimates.

The prospect of Draghi cutting the bank’s deposit rate by 10 basis points, or 0.1 percentage point, is fully priced into futures markets, data compiled by Bloomberg show.

“Draghi’s track record is that he has rarely disappointed,” said Andreas Koenig, the Dublin-based head of European foreign exchange at Pioneer Investments, which oversees $242 billion. “He always delivers. Buying euros will be only for correction moves.”

Koenig is betting against the euro heading into the meeting, taking a third of his position through euro forwards, and two thirds through options. The make-up of the position reflects the risk Draghi may not be able to exceed market expectations this time around, he said.

Before it's here, it's on the Bloomberg Terminal.