Euro wallows near nine-year low as sell-off continues

German inflation slows in December increasing pressure on Frankfurt to act

An illustration picture shows a one euro coin in water, which reflects the Greek flag, in Schwerin, Germany. Photograph: Jens Buettner/EPA

An illustration picture shows a one euro coin in water, which reflects the Greek flag, in Schwerin, Germany. Photograph: Jens Buettner/EPA

 

The euro wallowed near a nine-year trough on Tuesday, keeping up a wobbly start to 2015 as the prospect of more policy easing from the European Central Bank grew ever stronger.

The common currency last traded at $1.1948 after dipping into the $1.1860 area on Monday, reaching depths not seen since early 2006. The sell-off extended the currency’s eye-watering 12-per cent slide in 2014, its worst performance in nine years.

Adding pressure on the ECB to do more, German inflation slowed to its lowest in over five years in December. The data came just days after ECB president Mario Draghi said the risks were growing that inflation would stay too low for too long.

Constant chatter of a Greek exit from the euro zone further sapped confidence in the currency.

“I believe euro/dollar will continue to fall this month as the market moves to near 100 per cent certainty of ECB QE [quantitative easing] on January 22nd,” analysts at CitiFX wrote in a note to clients, attributing those comments to the bank’s head New York spot trader.

These factors, combined with persistent weakness in oil prices, spooked investors on Monday, sending Wall Street to its biggest one-day fall in about three months.

In the currency market, the flight to safety drove investors into the arms of the yen. As a result, the dollar dipped to as low as 119.155 yen from Monday’s high of 120.68, moving further away from a seven-year peak of 121.86 set last month.

A sharp fall in US Treasury yields also undermined the dollar versus the yen, with 10-year yields diving 14 basis points in just two sessions.

The euro also slid to a near two-month low of 142.285 yen .

Weakness in the common currency helped the dollar index stay near a nine-year peak of 91.775 set on Monday.

A slide in crude oil prices hurt commodity currencies like the Norwegian crown, which hovered near a three-week low of 7.6764 crowns per dollar.

Buffeted by a free fall in oil prices, the Norwegian currency had slid to a 12-year low of 7.8558 crowns against the dollar in December.

Brent crude oil was stuck near a five-and-a-half-year trough of $52.66 per barrel hit overnight as growth in supplies showed no signs of abating in an already saturated market.