Euro slumps to 2006 low on Greece as oil drops, stocks fluctuate

An employee restocks a display of oranges for sale beneath a price sign in both euros and Lithuanian litas inside a supermarket in Vilnius. Lithuania switched currencies to the euro on Jan. 1

The euro weakened to an almost nine-year low amid concern Greece will exit the currency union. Chinese shares jumped, oil slumped to its lowest level since 2009, while European stocks fluctuated.
The euro depreciated 0.3 percent to USD1.1971 at 8:29 a.m. in London, after touching its lowest level since March 2006. The dollar gained against 12 of its 16 major peers. The ruble slid 4.1 percent. The Stoxx Europe 600 Index rose 0.3 percent, while Standard & Poor’s 500 Index futures were little changed. The Shanghai Composite Index surged 3.6 percent to its highest level in five years. A gauge of global bond yields approached a record low. Crude slid 1.8 percent and gold rose 0.6 percent.
Greece’s political parties have embarked on a campaign for elections this month that may determine the fate of the country’s membership in the euro area, with Der Spiegel magazine reporting German Chancellor Angela Merkel is ready to accept a Greek exit. Data this week will probably show consumer prices in Europe fell for the first time in five years in December, adding to the argument for European Central Bank President Mario Draghi to extend stimulus.
“The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE and deepening concerns about the Greek political situation,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, said by phone. “The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff.”
The euro reached a low of $1.1864 yesterday, extending its loss over the past year to 12 percent as euro-region and U.S. monetary policy diverged. While the Federal Reserve has wound back its own bond-buying program and floated the prospect of raising interest rates from near zero, the ECB reduced rates and started asset purchases in a bid to stoke economic growth.
Draghi said in an interview with German newspaper Handelsblatt published last week that while deflation risks are “limited,” policy makers “have to act against such risk.” Asked how much the ECB might spend on government bonds, he answered that it’s “difficult to say.”
European consumer prices probably dropped 0.1 percent in December from a year earlier, according to a Bloomberg survey. That would be the first decline since October 2009, when the economy was struggling to recover from a slump after the financial crisis.
The pound declined to its weakest level since August 2013, while the Swiss franc lost 0.3 percent and the Australian dollar depreciated 0.5 percent. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.2 percent, heading for its highest close since March 2009.
Australian 15-year yields fell to an unprecedented 2.97 percent and Japan’s five-year yield dropped to a record 0.025 percent. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.30 percent on Jan. 2, approaching the low of 1.29 percent set in 2013, based on data going back to 1996.
Consumer staples and telecom stocks led declines on the MSCI Asia Pacific Index, which dropped 0.7 percent. The Kospi lost 0.6 percent in Seoul and Taiwan’s Taiex Index retreated 0.4 percent. Japan’s Topix fell 0.5 percent. Hong Kong’s Hang Seng Index dropped 0.6 percent.
The Shanghai Composite extended its rally over the past six months to 63 percent. A gauge of Chinese energy shares rose 8.9 percent yesterday, the most in more than six years, with PetroChina Co. and China Shenhua Energy Co. soaring by the 10 percent daily limit.
West Texas Intermediate crude slipped to $51.79 a barrel after capping a sixth straight weekly loss Jan. 2. Brent crude in London fell 1.7 percent to $55.48 per barrel, with both blends headed for their lowest settlement levels since 2009.
WTI and Brent tumbled more than 40 percent last year as the highest U.S. oil output in about 30 years collided with slowing global demand and OPEC’s reluctance to reduce its own production. Iraq plans to boost crude exports this month, according to the oil ministry.
Gold for immediate delivery gained to $1,196.26 an ounce. Silver advanced 2.2 percent to $16.0721 an ounce in the spot market, while platinum climbed 1.3 percent. Richard Frost and Kevin Buckland, Bloomberg