By Josie Cox
The euro slumped to a fresh 11-year low against the U.S. dollar
Wednesday, on the eve of a key meeting at which the European
Central Bank is expected to shed more light on how it will execute
the bumper bond-buying program it announced in January.
The bloc's single currency was trading around 0.9 percentage
point lower against the dollar midafternoon at around $1.1072, its
lowest point since September 2003. The euro also hit a seven-year
low against sterling Wednesday, of GBP0.7237.
"It ultimately comes down to the fact that we have one central
bank that is aggressively easing and one that looks like it will
hike rates and that is what's driving the move," said Peter
Kinsella, a currency strategist at Commerzbank in London,
referencing expectations that the U.S. Federal Reserve will start
raising rates this year.
Over the longer term, Peter Dragicevich, a currency strategist
at Commonwealth Bank of Australia, said he also expects the trend
to continue. "Barring a sharp and unanticipated faltering in the
U.S. economy, we expect the euro [against the dollar] to remain
heavy," he said.
The euro has now fallen almost 8.5% against the greenback this
year and it has dropped by almost 14.5% over the past six months.
ICE's U.S. Dollar Index, which measures the dollar's strength
against a basket of other currencies, rose to yet another 11-year
high Wednesday morning.
The euro's persistent weakness comes despite figures showing
that retail sales in the eurozone rose for the fourth straight
month in January and at the fastest rate in more than nine years,
which supported stocks.
The falling euro helped boost exporters in the eurozone, with
the Stoxx Europe 600 closing 0.8% higher. Germany's DAX 30 and
France's CAC 40 both posted gains of 1%, while London's FTSE 100
underperformed, closing up 0.4%.
The automobile sector led the way in Europe, with investors
looking for increased overseas sales given the falling euro. BMW
closed 1.8% higher, while Daimler ended up 2.8%.
Back in currency markets, India's rupee briefly rose to a
one-month high against the dollar in earlier trade after the
country's central bank surprised markets with a cut to its key
lending rate for the second time this year.
It trimmed its main repurchase rate by 0.25 percentage points to
7.5%, citing weakness in parts of the economy as well as favorable
inflation figures and structural overhauls included in the
government's proposed budget.
Indian stocks traded slightly higher Wednesday morning after the
Reserve Bank of India move and the rupee's rise proved
temporary.
Market participants said the central bank was buying U.S.
dollars and selling rupees after the rate move, to keep the rupee
from strengthening too sharply.
In Poland, meanwhile, the central bank slashed its main interest
rate by 50 basis points to 1.50%, the lowest on record, in response
to persistent declines in consumer prices.
After the rate decision, the zloty traded in a volatile fashion,
initially falling against the euro before rebounding to a
seven-month high of 4.1331 as the central bank later said that the
cut was the last in its current easing cycle, as the Polish economy
continues to grow briskly.
Write to Josie Cox at josie.cox@wsj.com
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