Tuesday, 10 March 2015 00:10
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Reuters: The euro dived to its lowest since early 2003 against the dollar on Wednesday, dragging other European currencies with it on the back of the huge differences developing in market interest rates between Europe and the United States.
In a dollar rally that began last July the single currency has lost around a quarter of its value, and there is little sign of that bottoming out. Deutsche Bank on Tuesday forecast a fall to 85 U.S. cents by the end of 2017.
That comes largely courtesy of the collapse in European bond yields, which are set to stay low for the foreseeable future under the programme of money-printing launched by the European Central Bank on Monday. Yields on German 30-year government bonds are now lower than those on U.S. two-year paper.
The picture for European stock markets, given the projected 1 trillion of new euros set to flow into the financial sector, is less grim, and the main indexes were all higher in early trade.
“It’s the euro versus everything,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets in London. “The way these moves look, it’s not just speculators piling into euro shorts, it’s actually net flow of capital out of the euro.”
“There’s a pick-up in Eurosystem excess liquidity just as the Fed is playing with its own operations to try to withdraw liquidity and as the rhetoric is tilted towards rate hikes.”
The euro sank as low as $ 1.0638 in early European deals, its weakest since 2003. The Norwegian and Danish crowns both hit similar lows and the Swedish crown a six-year low.
There is little optimism to be found in Asia, where poor data out of China helped stock markets fall to two-month lows.
