Euro declines versus yen ahead of ECB stimulus

Australian dollar weakened to end a series of weekly gains

“If there’s anyone who has the market’s firm belief that they can over-deliver, it’s always going to be Mario Draghi.”

“If there’s anyone who has the market’s firm belief that they can over-deliver, it’s always going to be Mario Draghi.”

 

The euro is set for its longest stretch of weekly declines versus the yen since the common currency’s creation in 1999 as anticipation builds that the European Central Bank will surprise some investors with the size of its stimulus next week.

The 19-nation currency is also headed for its biggest monthly loss since March versus the greenback, notching up declines against 13 of 16 major peers.

Reports Friday are forecast to show industrial confidence in the region deteriorated in November, while annual price pressures in Spain remained negative.

The Australian dollar weakened for a third day, poised to end a series of weekly gains, as stocks plunged in China and the Asian reported falling industrial profits.

“If there’s anyone who has the market’s firm belief that they can over-deliver, it’s always going to be Mario Draghi, ” Chris Weston, chief market strategist in Melbourne at IG, said of the ECB president.

“The reason we haven’t started seeing traders looking to fade the euro with any great conviction is there’s a genuine belief that he’s guided the market to an extent and can come out and do more.”

The euro fetched 130.05 yen as of 7.40am in London, set to complete a seven-week slide of 4.8 per cent. Europe’s common currency was at $1.0628, down 0.2 per cent this week and 3.4 per cent since October 30th.

It slid to $1.0566 on Wednesday, the lowest since April. US financial markets were shut Thursday for Thanksgiving.

The euro has dropped 12 per cent this year versus the greenback as the ECB struggles to boost economic activity and prevent the inflation rate, currently at 0.1 per cent, from slipping further from its target of just under two per cent.

Draghi put markets on notice for further stimulus earlier this month, saying the institution will do what’s necessary to reach its inflation goal rapidly. ECB policy makers will meet on December 3rd.

Australia and New Zealand Banking Group estimates that movements in swap rates since the last meeting indicate that markets need Draghi to deliver at least a 14 basis point cut to the deposit rate along with an expansion of its quantitative easing program.

The deposit rate is currently at minus 0.2 per cent. Australia’s dollar fell for a third day as the Shanghai Composite Index of stocks slumped 5.5 per cent. The Aussie weakened 0.2 per cent to 72.10 US cents, set for a 0.4 per cent drop this week.

China’s industrial profits declined 4.6 per cent in October from a year earlier, while profits for the January to October period decreased 2 per cent, according to the statistics bureau.