Euro hits new 11-year low of US$1.11 in post-ECB stimulus slide

The euro fell again against the US dollar on Friday and the currency market is nervously awaiting the outcome of Greece's general election on Sunday. -- PHOTO: AFP
The euro fell again against the US dollar on Friday and the currency market is nervously awaiting the outcome of Greece's general election on Sunday. -- PHOTO: AFP

NEW YOR (AFP) - The euro fell again against the US dollar on Friday, hitting a new 11-year low a day after the European Central Bank unveiled a vast bond-buying programme to revive the euro zone.

The currency market also nervously awaited the outcome of Greece's general election on Sunday, with polls showing the leftist anti-austerity Syriza party would win, posing a new challenge to the bailout programme from the European Union and the International Monetary Fund.

The euro, which fetched US$1.1359 late Thursday, tumbled to US$1.1115, the lowest level since September 2003.

The ECB's announcement on Thursday of a €1.14 trillion (S$1.72 trillion) bond-buying programme, or quantitative easing (QE), aims to stimulate growth and avert deflation after the nearly stagnant euro zone saw prices drop in December for the first time in five years.

ECB chief Mario Draghi said the programme would continue at least through September 2016.

Analysts said the euro could slide further toward dollar parity as the ECB announcement underscores a growing policy divergence with the US Federal Reserve, which exited its QE programme in October and is considering an interest rate hike this year.

"The key factor is that the ECB's extension of QE is open-ended," said RIA Capital Markets analyst Nick Stamenkovic.

"In other words, if euro area inflation fails to rise in coming months, then further purchases are likely as it attempts to restore price stability over the medium term."

But with the Fed looking set to raise interest rates from near zero, where they have been pegged since late 2008 amid the financial crisis, in mid-2015, "the euro looks increasingly likely to reach (US dollar) parity by year-end, if not sooner", he said.

The Fed's policy arm, the Federal Open Market Committee, meets on Tuesday and Wednesday.

Ms Kathy Lien of BK Asset Management said that part of the US dollar index's more-than-5-per-cent gain since the beginning of the year reflected the positive outlook for the US economy, which is enjoying relatively strong growth compared with other major economies.

"The main reason the dollar is performing so well is because central banks around the world are in a race to ease," Ms Lien said, citing the Bank of Canada's quarter-point rate cut, the ECB's QE and dovish minutes from the Bank of England monetary policy meeting.