The euro slumped to the lowest against the US dollar in 4.5 years after the European Central Bank (ECB) signaled that it will embark on large-scale government bond purchases, as the US Federal Reserve moves closer to raising interest rates.
The 19-nation common currency slid for a third week after ECB President Mario Draghi said he cannot rule out deflation in the eurozone.
The yen also declined for a third week, while the ruble plummeted 9.4 percent to lead emerging market peers lower. The greenback advanced gained against all of its 16 major peers ahead of a report next week that may show that the US jobless rate fell to a 6.5-year low.
“The US labor market is performing well and the unemployment rate is falling further,” Ralf Umlauf, head of research for Helaba Landesbank Hessen-Thueringen, said by telephone on Friday. “In the eurozone, it’s a completely different picture. We have still very high unemployment rates near the historical top. So that’s the reason why we have the divergence in monetary policies.”
The euro dropped 1.5 percent last week to US$1.2002 on Friday in New York after falling to US$1.2001, the lowest since June 2010. The shared currency lost 1.3 percent against the yen to ￥144.63. Japan’s currency traded at ￥120.28 per US dollar.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.9 percent in the week to 1,141.02. It added 11 percent last year, the biggest gain in data going back to 2005.
The US dollar gained against all of its 31 major counterparts last year for the first time in data going back to 1989, buoyed by an improving economy. However, strategists do not see a repeat of that this year.
More than half of those counterparts are forecast to gain next year against the greenback, led by this year’s biggest loser, Russia’s ruble. It is predicted to add 17 percent after plunging 46 percent last year under the pressure of sliding oil prices and US and European economic sanctions over Moscow’s role in the Ukraine crisis.
Argentina’s peso is forecast to be the biggest loser of the new year, dropping another 29 percent after last year’s 23 percent descent.
The euro is projected to fall 1.7 percent and the yen 3.6 percent.
The shared currency slumped 2.8 percent last month for a sixth straight month of losses — its longest skid since 2010.
“The risk cannot be entirely excluded, but it is limited,” Draghi said when asked if the region could enter a spiral of declining prices, falling wages and postponed spending. “We have to act against such risk.”
Draghi seldom gives interviews and his comments to the German newspaper Handelsblatt reflect a drive to win over that nation. Policymakers there have led criticism of quantitative easing, saying it threatens financial stability, reduces the incentive for governments to restructure their economies and is legally tricky.
Policymakers in Japan have also embraced monetary stimulus to ward off deflation, prompting the yen to fall for a third consecutive year against the US dollar last year.
The foreign exchange market is bracing for more yen-debasing stimulus measures from the Bank of Japan (BOJ) after the nation slipped into a recession last quarter. The bank can employ new measures to reach its 2 percent inflation goal this year, BOJ Governor Haruhiko Kuroda said in an interview with the Mainichi newspaper.
The greenback rose as economists polled by Bloomberg forecast that the US unemployment rate fell to 5.7 percent last month, the lowest since June 2008, before the US Department of Labor report on Friday next week. Employers added 240,000 jobs, economists projected.
The Fed said it will be patient on the timing of the first interest rate increase since 2006 and raised its assessment of the labor market at the last meeting of its Open Market Committee on Dec. 17. The committee’s next scheduled decisions are Jan. 28, March 18 and April 29.
BNP Paribas SA analysts recommended buying the US currency, and selling the euro and yen in a note on Friday.
In London, the pound fell against the US dollar for a third week, reaching a 16-month low as reports showed that growth in manufacturing and the housing market slowed, spurring bets that the Bank of England will refrain from raising interest rates.
“Recent UK data suggested growth may have peaked,” said Jeremy Stretch, head of foreign exchange strategy at Canadian Imperial Bank of Commerce in London. “That supports a view that sterling will probably weaken against the dollar as the US economy outperforms.”
The pound dropped 1.3 percent in the week to US$1.5357 as of 5:32pm in London on Friday. Sterling was at ￡0.7818 per euro, having gained 6.9 percent last year against the common currency.
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