Euro hits fresh nine-year low on expectation of ECB action

[NEW YORK] Negative economic reports from Europe and positive US data pushed the euro to a fresh nine-year low on Thursday for a fifth day of losses as diverging monetary policies continued to bolster the greenback.

The European Central Bank meets on Jan. 22 when investors expect it to finally launch a program of government bond buying with new money, a policy known as quantitative easing.

That contrasts with a Federal Reserve poised to start tightening US policy, in effect limiting the availability of cheap funding, as the economy looks to be on firmer footing. "I'm in a very crowded room where everybody is saying buy the dollar, and really they have already bought the dollar,"said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "My best guess now is that on Jan. 22 when the ECB meets we could be setting ourselves up for sell the rumor, buy the fact. Maybe when the ECB announces what they do, perhaps there is one more push down in the euro and then people buy it back to take profits (on those short positions,)" he said.

A slump in German industrial orders in November and a drop in euro zone consumer inflation expectations reinforced bearish views of the euro zone common currency. So did concern that a Jan. 25 Greek general election would lead to a stand-off between Berlin and Athens over austerity policies imposed on Greece.

A Reuters poll forecast the US economy added 240,000 nonfarm jobs in December. "Any number above 200,000 should keep the broad dollar strength trend in place," said Yujiro Goto, a currency strategist at Nomura in London.

The euro fell to US$1.17540, its lowest since December 2005, on the EBS trading platform. Traders cited option barriers at US$1.1750. By the end of the New York session the euro was trading around US$1.17895, down 0.41 per cent.

The dollar climbed to 119.97 yen, pulling away from Tuesday's three-week trough just above 118 yen. It last traded around 119.63 yen, up 0.32 per cent on the day.

Rallying global stock markets on Thursday contributed to the yen's decline, said BBH's Chandler.

Weakness in the euro kept the dollar index at nine-year highs. It hit a peak of 92.528 before drifting down to 92.333, a gain of 0.49 per cent.

REUTERS