By James Ramage
The dollar soared against the euro on Thursday after the
European Central Bank announced a massive asset-purchase program, a
move that also had ripple effects among European currencies apart
from the euro.
The euro sank below $1.14 for the first time since November 2003
in a decline that ranked among its largest ever. The single
currency reached $1.1316 before rebounding slightly to trade at
$1.1337 in late-afternoon trade, falling 2.4% on the day.
The selloff also reverberated in other currency markets with
close economic ties to the eurozone. The British pound slid 1.1% to
$1.4980, a new 18-month low. The dollar also posted gains against
other developed-market European currencies, such as the Swiss
franc, the Norwegian krone and the Swedish krona.
ECB President Mario Draghi announced the ECB will buy a total of
60 billion euros ($69 billion) a month in assets, including
government bonds, debt securities issued by European institutions
and private-sector bonds. The purchases will start in March and run
through September 2016 but could extend beyond that point should
inflation remain too far below 2%, Mr. Draghi said.
The large asset-purchase program, also called quantitative
easing, is expected to weaken the common currency, because the ECB
will print euros to buy the debt.
Some European policymakers believe a weaker euro will make
eurozone-made goods more competitive, which would benefit Germany's
export-driven economy. But that could become a problem for the
exports of other European countries with currencies that have
appreciated against the euro. A weaker euro could prove troublesome
for them over the longer term and potentially persuade their
respective central banks to respond, said Omer Esiner, chief market
analyst with currency brokerage Commonwealth Foreign Exchange
Inc.
"There's a view that if the euro continues to depreciate, then
peripheral economies with strong trade ties with the eurozone might
have to take steps to limit the rise in their currencies to remain
competitive with the region," Mr. Esiner said.
In response to the ECB move, Denmark's central bank on Thursday
cut its main interest rate for the second time in a week, in an
attempt to stifle investor interest in its currency as investors
sold the euro.
The size and duration of the program herald a sustained flood of
assets into the global markets, said Richard Cochinos, head of
Americas developed-market foreign-exchange strategy at Citigroup
Inc. This encouraged investors to move into assets they perceive as
risky, such as equities and emerging-market currencies, most of
which rallied against the dollar following the ECB
announcement.
Investors also shed some of their positions in haven assets,
such as the yen and U.S. Treasurys. The dollar rose 0.6% versus the
Japanese currency, rising to 118.63 yen.
The dollar has rallied sharply in the past seven months as
investors have piled into bets against developed-market currencies
for months with the belief that central banks around the world
would continue adopting easing measures to boost growth and
inflation while the Federal Reserve moves closer to raising
interest rates. Higher U.S. rates make the dollar more attractive
to investors as they would boost returns on assets denominated in
the currency.
The market looks to the Greek election on Sunday, which the
leftist, anti-austerity Syriza party is poised to win. Investors
fear a Syriza victory potentially could lead Greece to exit the
euro. Investors predict the uncertainty surrounding the election's
results and consequences could further weaken the single
currency.
Write to James Ramage at james.ramage@wsj.com