Euro Falls to Lowest Since March as Draghi Eases Nerves on QE

(Bloomberg) -- The euro fell to the lowest since March after Mario Draghi said quantitative easing is unlikely to come to an “abrupt” end, making traders more confident that unprecedented monetary stimulus will continue beyond its planned end date.

The single currency declined for a third week after the European Central Bank president said Thursday that neither tapering nor an extension of the institution’s bond-buying plan were discussed at its two-day policy meeting. The euro has taken a leg lower this month, sliding about 3 percent -- a change from the third quarter, when it traded in its narrowest range ever.

The declines came as speculation faded that central bankers back a sudden end to QE after March, which is the latest date that they’ve committed to for the program. Pacific Investment Management Co. predicts the ECB will actually ease further in December and that it won’t remove stimulus until inflation is “solidly on track” for its goal of close to 2 percent.

“The euro in general has been weakening” on expectations that the ECB will extend stimulus, said Sireen Harajli, a foreign-exchange strategist at Mizuho Bank Ltd. in New York. “This is all the after-effects of the ECB meeting -- the message has been quite clear by Mr. Draghi that tapering is not on the table.”

The euro dropped 0.4 percent to $1.0884 as of 5 p.m. in New York, after touching the lowest since March 10, when the ECB cut its main interest rates to record lows. The shared currency fell 0.8 percent versus the greenback this week.

Economic Fillip

The ECB’s unprecedented QE plan is designed to spur inflation and growth across the 19-nation euro zone. Stimulative monetary policy tends to weaken a currency by boosting the money supply, potentially benefiting a sluggish economy by making exports cheaper and pushing up consumer prices.

As well as calming nerves about an abrupt end to the program, Draghi and his colleagues left interest rates and bond purchases unchanged, as forecast by economists surveyed by Bloomberg.

“Anybody who’d positioned for the risk that Draghi would signal a hard taper took those chips off the table,” said Ned Rumpeltin, head of European currency strategy at Toronto-Dominion Bank in London.

The shared currency was also undermined by a resurgent dollar, which is being driven by mounting speculation that the Federal Reserve will raise rates in December -- widening the policy divergence with its counterpart in Frankfurt.

Australia & New Zealand Banking Group Ltd. predicts the euro will drop below $1.05 in coming months on the outlook for higher U.S. rates and political risks including Italy’s constitutional-reform referendum and elections in the Netherlands, France and Germany. Deutsche Bank AG and TD also expect euro weakness to gain momentum into year-end.

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