Euro hits new 11.5-year dollar low as ECB starts QE

[LONDON] The euro dived on Monday to a new 11.5-year low against the dollar as the European Central Bank kicked off its radical 1.1-trillion-euro (S$1.64-trillion) bond-buying programme, known as quantitative easing.

Sentiment was also weighed down by concerns over Greece, with Athens due to present its reform plans to Brussels in order to secure a financial lifeline.

In Asian trading hours, the shared eurozone unit sank to US$1.0823, last seen in September 2003, having hit a similar low on Friday as upbeat US payrolls data boosted expectations for a Federal Reserve rate hike.

"Strong US nonfarm payroll numbers punished the euro on Friday, but this morning's roll-out of the eurozone's QE programme saw the single currency drop even further," said ETX Capital analyst Daniel Sugarman.

In later morning London deals, the euro recovered slightly to stand at US$1.0876, up from US$1.0842 late in New York on Friday.

The Frankfurt-based ECB announced on Monday that it and the national central banks of the euro area have started buying bonds as part of the long-awaited purchase programme to combat the deflation threat.

Further details about the purchases - the amounts or whether they were public or private-sector bonds - were not immediately available.

However, Europe's main stock markets sank as investors took profits from last week's ECB-inspired gains.

In late morning deals on Monday, London's benchmark FTSE 100 index of leading companies fell 0.62 per cent to 6,869.10 points.

Frankfurt's DAX 30 shed 0.24 per cent to 11,523 points and the CAC 40 index in Paris lost 0.49 per cent to 4,939.90 points compared with Friday's close.

Some analysts predict the eurozone unit could reach parity against the dollar, amid a growing policy divergence between the ECB and the Fed.

The US Federal Reserve had ended its own QE program in October.

"The euro looks likely to remain weak over the coming weeks given that the ECB and Federal Reserve appear on diverging tracks in terms of monetary policy," CMC Markets analyst Michael Hewson told AFP.

"With 10 yield spreads between US treasuries and German bunds wider than they have ever been, the prospect of further euro losses towards parity remains a distinct possibility in the coming weeks."

In company news, Lloyds Banking Group (LBG) shares slid 0.66 per cent to 80.89 pence after the British government sold another 1.0 per cent in the state-rescued lender for £500 million (S$1.03 billion), matching last month's sale.

The Treasury announced in a statement that the move has trimmed its stake from 24 per cent to just under 23 per cent, under plans to return LBG to private hands.

Britain still owns a large chunk of Lloyds after bailing it out with £20 billion of taxpayers' cash at the height of the 2008 global financial crisis.

Asian equities mostly fell Monday, dragged down by expectations the US could soon raise interest rates, while Tokyo took a hit from news Japan's economy grew slower than thought in the last quarter of 2014.

Tokyo stocks fell 0.95 per cent after the government downgraded growth for the October-December period to 0.4 per cent from 0.6 per cent.

AFP