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Euro slumps on ECB stimulus

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The euro resumed its slump on Thursday, sitting around 12-year lows against the dollar, as the European Central Bank's new stimulus and the likelihood of a US rate hike push the embattled unit closer to parity with the greenback.

[TOKYO] The euro resumed its slump on Thursday, sitting around 12-year lows against the dollar, as the European Central Bank's new stimulus and the likelihood of a US rate hike push the embattled unit closer to parity with the greenback.

In Tokyo afternoon trade, the common currency fell to US$1.0515, down from US$1.0548 in New York where it hit US$1.0510 at one stage.

The euro also weakened to 127.72 yen from 128.10 yen in US trade, while the dollar was slightly higher at 121.45 yen against 121.44 yen.

With the ECB just starting on its quantitative easing drive, and the Fed due to lift rates possibly by June, analysts are tipping dollar-euro parity by next year, which last happened in 2002.

"The asset-purchase programme, which is starting now, that's obviously going to drive the euro lower," said Fabian Eliasson, head of US corporate foreign-exchange sales at Mizuho Financial Group.

"The dollar is just crushing it across the board." The greenback rose to 1,131.55 won from Wednesday's 1,126.40 won after South Korea's central bank announced a surprise cut in interest rates to a record low 1.75 per cent in a bid to avert deflation and to kickstart the economy.

The Bank of Korea is the latest country - including China, India and Australia - to lower rates in the face of falling prices and weak economic growth.

"There's such a divergence between what's going on in the rest of the world with central banks cutting rates and the US likely raising them," Michael Cuggino, president of Pacific Heights Asset Management, told Bloomberg News.

The ECB on Monday launched its stimulus programme, under which it plans to buy 1.14 trillion euros' worth of bonds over the next 18 months. The programme aims to pump liquidity into the stagnant euro area economy.

Investors are also nervously watching strained talks between Greece and its European creditors over reforming its bailout obligations.

In other trading, the dollar rose to Tw$31.68 from Tw$31.63 on Wednesday, and to 32.86 Thai baht from 32.68 baht.

It weakened to 44.31 Philippine pesos from 44.34 pesos, to S$1.3856 from S$1.3869, to 13,182.50 Indonesian rupiah from 13,210.00 rupiah, and to 62.59 Indian rupees from 62.75 rupees.

The Chinese yuan rose to 19.39 yen from 19.36 yen, while the Australian dollar eased to 76.00 US cents from 76.01 cents.

AFP