Euro tumbles to new 11.5-year low

[LONDON] The euro dived on Friday to another 11.5-year low, one day after the European Central Bank announced it would launch its massive stimulus package next week.

The single currency sank to US$1.0963 - the lowest since September 2003 - as investors also awaited US non-farm payrolls data that, if strong enough, could support a Federal Reserve interest rate increase.

Analysts expect growth of 240,000 jobs in February and a fall in the unemployment rate to 5.6 per cent from 5.7 per cent.

"The euro has fallen to fresh lows versus the dollar as investors anticipate another solid US employment report in February, increasing the likelihood of a Fed tightening by mid-year," RIA Capital Markets analyst Nick Stamenkovic told AFP.

"By contrast, ECB president (Mario) Draghi signalled an open-ended aggressive asset purchase programme aimed at restoring price stability over the medium-term." The ECB on Thursday said its 1.1-trillion-euro (US$1.2 trillion) quantitative easing stimulus would be launched early next week.

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

The Frankfurt-based central bank is battling deflation risks across the 19-nation eurozone, while its US counterpart exited its own QE program in October, and is mulling an interest rate hike later this year amid optimism over the American economy.

"Diverging policy stances between the Fed and ECB look set to persist for some time, pushing the euro towards parity over the medium-term as the search for yield drives euro area investors to increase exposure to overseas assets," Mr Stamenkovic told AFP.

However, Rabobank analyst Jane Foley cautioned that the Federal Reserve was mindful of weak US inflation. "The combination of yesterday's speech from Draghi and today's US payrolls report have focussed attention on the divergence between the policy directions of the ECB and the Fed," Ms Foley told AFP.

"The ECB has indicated that it is prepared to throw the kitchen sink in with its attempts to beat deflationary risk and the resultant weakness of euro/dollar will undoubtedly help with the policy's success." She added: "We do not think that the Fed will hike until December, based on weak inflation. Consequently we think that euro/dollar will avoid parity." In later morning London deals, the euro stood at US$1.0969 down from $1.1028 late in New York on Thursday.

Meanwhile, European stock markets mostly edged higher, extending Thursday's gains after the ECB revealed it will launch its vast QE stimulus on Monday.

Frankfurt's benchmark DAX 30 index of top companies gained 0.07 percent to 11,512 points and the CAC 40 index in Paris won 0.06 per cent to 4,966.20 points compared with Thursday's close.

On the downside, London's FTSE 100 fell 0.11 per cent to 6,953.30 points, having posted a record closing high on Thursday on the ECB news.

AFP