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Euro hounded ahead of inflation data, yen on firm footing

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The euro slid to a nine-year low against the dollar early on Wednesday as investors braced for inflation data that should give doves at the European Central Bank a clear mandate for bold policy stimulus.

[SYDNEY] The euro slid to a nine-year low against the dollar early on Wednesday as investors braced for inflation data that should give doves at the European Central Bank a clear mandate for bold policy stimulus.

The common currency sank as deep as US$1.1842 in erratic Asian trade, from around US$1.1885 late in New York. Traders said some sell stops were triggered after the currency broke below Monday's trough of $1.1861.

Data due later in the day is expected to show consumer prices in the euro zone fell in December year on year, the first such drop since 2009. "The data should be supportive of expectations for ECB QE operations to begin in January. We remain short EURUSD heading into this data," analysts at BNP Paribas wrote in a note to clients, referring to quantitative easing or a wide scale bond buying programme.

The yen, meanwhile, held at multi-week highs against the dollar and euro, having powered up for a second session as investors sought the safety of the Japanese currency.

Spooked by persistent weakness in oil prices and the prospect of deflation in Europe, investors dumped stocks and snapped up government bonds. The US 10-year yield fell back below 2 per cent as a result, while German yields slid to a record low of 0.442 per cent. "Against this cautious market backdrop, the yen continues to outperform in its 'safe haven' capacity," said Spiros Papadopoulos, senior economist at National Australia Bank.

The fall in US yields gave some investors a green light to sell dollar/yen, pushing the greenback towards 118.00 yen for the first time since mid-December.

It last traded at 118.55, well off a seven-year peak of 121.86 set on Dec. 8. The euro dropped to 140.58 yen, a low last seen in early November.

The standout performer was the New Zealand dollar, which rose broadly after international milk prices climbed again at a fortnightly auction, in part because of supply concerns.

The currency of the world's largest dairy exporting country rose to US$0.7767, pulling well away from Monday's low of US$0.7619.

The kiwi also rallied against its Australian peer, which slid as far as NZ$1.0383 to an all-time low. The Aussie last traded at NZ$1.0419.

Traders suspect the kiwi will reach parity with its Australian peer before long.

REUTERS