Euro plunge halted after ECB unleashes torrent of money

NEW YORK (Bloomberg) - After its biggest slide since being created in 1999, the euro is finding a floor.

A torrent of money unleashed by the European Central Bank is fueling demand from U.S. and other international investors for the region's stocks - and the currency needed to buy them.

After tumbling from almost US$1.40 in May 2014, the euro is poised to rise in April for the first time in 10 months. It was at US$1.0862 at 11:30 a.m. in Tokyo on Monday, up from US$1.0731 at the end of March. Since March 6, it has closed in a five-cent trading band between US$1.0496 and US$1.0970.

Global mutual funds and exchange-traded funds that focus on European equities attracted US$63.6 billion this year through April 22, up 70 per cent over the same period in 2014, according to data compiled by EPFR Global.

Rather than a referendum on the outlook for growth in the euro zone, demand for the euro reflects appetite from investors who want a piece of this year's 19 per cent rally in the region's stocks.

"European equities went from being an incredibly unloved asset class to very fashionable almost overnight," David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management. "In the short term, the euro will probably firm a bit more."

Demand for the region's equities has driven the Stoxx Europe 600 Index to a record since ECB President Mario Draghi announced his quantitative-easing plan on Jan. 22. The gains mirror the reaction during the Federal Reserve's third bond-buying program, which ran from September 2012 to October 2014 and sent U.S. stocks higher. The U.S. dollar strengthened about 10 percent in that time.

Some money managers are forgoing currency hedges on their European investments, Nomura Holdings analysts led by Jens Nordvig wrote in an April 17 note.

About 30 per cent of the US$25.5 billion channeled into U.S. exchange-traded funds focused on European equities went into unhedged strategies, according to data compiled by Bloomberg. That US$8 billion is about comparable to the entire amount that was invested in the same period of 2014 across both hedged and unhedged ETFs with a similar focus.

"If you're a North American investor, we finally have QE, we finally have policy makers responding," Susanne Alexandor, a senior member of the investment team at Cougar Global Investments Ltd., a Toronto-based investor in ETFs with $1.3 billion under management, said April 21. "We like the market and we decided to take the currency unhedged because we don't have huge conviction that the euro could go a lot lower from here."