Euro slides on ECB stimulus expectations

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TOKYO: The euro slid in Asia on Thursday ahead of a key meeting of the European Central Bank (ECB) where policymakers are widely expected to step up their stimulus program.

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At the ECB’s last monetary policy meeting of the year, analysts said President Mario Draghi will likely announce a beefing up of the bank’s bond purchase program and a possible cut in key interest rates, already at historic lows.

Speculation that the bank will further loosen its grip on monetary policy continues to press on the euro and has revived he possibility of it hitting parity with the dollar for the first time since 2002.

On Thursday, the unit weakened to $1.0592 and 130.63 yen, from $1.0619 and 130.83 yen in New York.

In a bid to bring eurozone inflation back up to levels conducive to healthy economic growth, the ECB has already unleashed an unprecedented series of easing measures.

It has slashed borrowing costs, made vast amounts of cheap loans available to banks and most recently embarked on a program to buy around 60 billion euros of sovereign bonds each month until at least September 2016.

But inflation is still stubbornly low, standing at just 0.1 percent in November, far below the ECB’s target of just under 2.0 percent.

“With various speculations about what the ECB may do, it comes down to whether these measures are more or less than expected,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust.

“With bullish dollar positions at a very high level, we need to be mindful of position unwinding. A sense that the ECB may be done for now may spark buying back of the euro,” he told Bloomberg News.

The dollar has won support from the expected policy divergence between the Federal Reserve—which may raise interest rates later this month—the ECB and Japan’s central bank.

The greenback got another lift Wednesday as Fed chief Janet Yellen signaled that the US economy looks strong enough for a rate hike this month.

In Tokyo, the dollar was off its New York levels, slipping to 123.30 yen from with 123.81 yen.

It was broadly higher against other Asian currencies including the Philippine peso, Malaysian ringgit, Indonesian rupiah, South Korean won, and Indian rupee.

 AFP

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