Euro falls as consumer prices drop most since 2009

An employee drops freshly struck Lithuanian one euro coins into a collection tray in the Bank of Lithuania mint in Vilnius

The euro dropped for a fourth day versus the dollar, the longest streak in two months, as consumer prices in the region fell more than economists predicted and strengthened the case for asset purchases by the European Central Bank.
A dollar gauge climbed to the highest since 2005 as a private report showed U.S. companies added more workers than forecast in December before the Federal Reserve releases minutes of its last meeting amid signs policy makers are moving toward raising interest rates. The 19-nation shared currency reached a nine-year low amid speculation the ECB will announce a sovereign-bond buying program as early as this month. Brazil’s real led advances among major currencies.
“The ECB has been on a trajectory toward full QE for some time now and all their statements are telling us they’re about to pull the trigger, either on Jan. 22 or, at the latest, the meeting after that,” said Sonja Marten, a currency strategist at DZ Bank AG in Frankfurt, referring to quantitative easing, or bond buying. “For the euro, we’ve had a pretty tough couple of weeks. Looking at the next few weeks, the bias is going to remain very much on the downside.”
The euro dropped 0.5 percent to USD1.1835 at 8:43 a.m. in New York and touched $1.1819, the weakest level since 2006. The euro gained 0.3 percent versus Japan’s currency to 141.24 yen. It slipped 2.9 percent in the previous three days. The dollar strengthened 0.8 percent to 119.30 yen.
Intercontinental Exchange Inc.’s U.S. Dollar Index, which tracks the currency against six major peers, rose 0.6 percent to 92.021 after climbing to 92.118, the highest level since December 2005.
The dollar extended gains after companies in the U.S. added 241,000 workers in December, figures from the Roseland, New Jersey-based ADP Research Institute showed yesterday. The median projection of 45 economists surveyed by Bloomberg called for an advance of 225,000. Estimates ranged from gains of 185,000 to 310,000.
Labor Department data in two days may show private payrolls climbed by 228,000 workers last month as the jobless rate fell to a 6 1/2-year low of 5.7 percent, according to Bloomberg surveys.
Yesterday’s Fed minutes may offer insight into the meaning of the central bank’s guidance that it will be “patient” when considering the timing of the first rate increase since 2006. After its Dec. 16-17 gathering, Chair Janet Yellen said the Fed was unlikely to raise borrowing costs at the next couple of meetings, in January and March.
Consumer prices in the currency bloc dropped 0.2 percent in December, the European Union’s statistics office in Luxembourg said yesterday. That’s the lowest rate since September 2009. Economists in a Bloomberg survey predicted a decline of 0.1 percent. Unemployment held at 11.5 percent in November, Eurostat said in a separate report.
The common currency has weakened 0.7 percent in the past month compared with a 3.5 percent gain for the dollar among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. That’s reflecting the divergence in their monetary policy outlook as the U.S. economy recovers and Europe’s stagnates.
With officials in Frankfurt led by ECB President Mario Draghi working on a plan to buy government bonds, the currency has also been weakened by renewed political turmoil in Greece. The country is set for elections this month that may bring into power a party opposed to austerity measures that are a condition of the nation’s financial bailout.
Paris was put on the highest terrorist alert after at least 12 people were killed in shootings at the offices of the French satirical weekly Charlie Hebdo in eastern Paris. Four more people are in a critical state and an additional 20 have been injured, police said.
A slide in Greek bonds yesterday sent the 10-year yield above 10 percent for the first time since September 2013. “With Draghi looking increasingly likely to override German objections to QE at the Jan. 22 ECB meeting and the U.S. economy firmly on track for higher interest rates this year, any euro bounces should be modest,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney.
The real advanced 0.8 percent to 2.6798 per dollar, the strongest level on a closing basis since the end of 2014. Swap rates, a gauge of expectations for changes in borrowing costs, decreased 0.05 percentage point to 12.73 percent on the contract maturing in January 2016. Lukanyo Mnyanda, Bloomberg