The euro dropped to the lowest level in two years against the dollar as slowing inflation boosted the case for the European Central Bank to add further monetary stimulus to avert deflation.
The 18-nation currency headed for its worst quarter since 2010 amid the ECB’s moves to swell its balance sheet and cut borrowing costs to spur growth. Russia’s ruble slumped after Bloomberg News reported the central bank is weighing capital controls, and the Canadian dollar weakened as the nation’s economy stalled. The U.S. dollar has climbed this quarter as the Federal Reserve considers raising interest rates.
“The violence of this euro move has been fairly dramatic,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “We’re in this period of broad U.S. dollar strength. It’s fairly hard for almost any currency to strengthen in that kind of environment.”
The euro dropped 0.4 percent to $1.2633 at 1:19 p.m. New York time and touched $1.2571, the weakest since September 2012. It has lost 3.8 percent this month and plunged 7.7 percent since June 30, the most since second-quarter 2010. The euro fell 0.3 percent today to 138.51 yen.
The dollar gained 0.2 percent to 109.66 yen and reached 109.85, the highest since August 2008. It has gained 5.4 percent in September and 8.2 percent since June 30.
The ECB meets Oct. 2. The euro has tumbled almost 10 percent from a two-and-a-half year high reached in May as policy makers unveiled unprecedented stimulus to arrest a slide in inflation that threatened the region’s emergence from its debt crisis. A weaker currency may suit bank President Mario Draghi as it makes euro-area exports more competitive, while increasing consumer prices by making imports more expensive.
Consumer prices in the euro region rose an annual 0.3 percent in September, following a reading of 0.4 percent in August, the European Union’s statistics office in Luxembourg said today. That’s less than a quarter of the ECB’s target and a five-year low.
The euro “is looking remarkably sickly,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The lack of price pressure in the euro zone just keeps the pressure firmly on the ECB. It is a fairly compelling picture, which shows the path of least resistance continues to be toward a lower euro.”
While CIBC’s year-end euro forecast is $1.26, “we often find that euro-dollar goes higher into year-end so that does not rule out a test toward $1.2450 first,” Stretch said.
The Bloomberg Dollar Spot Index increased 0.2 percent to 1,071.04, the highest on a closing basis since June 2010. It has gained 6.8 percent this quarter, the most since the three months ended September 2008.
“The dollar appreciation is broad-based,” said Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc. “Our recommendation is to be long dollar.” Long positions are bets a currency will strengthen.
The U.S. currency has rallied as the Fed has been on track to conclude next month a bond-buying program designed to keep long-term borrowing costs low and spur economic growth. There’s a 79 percent chance the U.S. central bank will raise interest rates for the first time since 2006 in September 2015, federal-fund futures trading showed.
The Bank of Japan, which meets next week, is buying 60 trillion ($548 billion) to 70 trillion yen a year of bonds to stave off deflation. Policy makers’ goal is to increase inflation to an annual 2 percent.
The dollar pared gains after the Conference Board’s consumer-confidence (CONCCONF) index and a gauge of Chicago-area manufacturing declined more than forecast this month. Confidence fell to 86, from 93.4 in August, versus a Bloomberg survey forecast of 92.5. The business barometer of the Institute for Supply Management-Chicago Inc. decreased to 60.5, from 64.3. The forecast was 60.5. A reading greater than 50 signals expansion.
The ruble sank as much as 1.1 percent to a record 39.8900 per dollar before trading at 39.6015, down 0.4 percent. Russia’s central bank is weighing the introduction of temporary capital controls if net outflows rise significantly, according to two officials with direct knowledge of the discussions. They asked not to be identified because no decision has been made.
The central bank said in a statement on its website it isn’t discussing any limitations on cross-border capital flows.
The Hong Kong dollar traded at almost a two-year low as pro-democracy protests swelled on the eve of a two-day holiday that may bring more people to rallies as organizers pressed demands for free elections.
The currency, which is pegged to the U.S. dollar, was little changed at 7.7646 per greenback. It reached 7.7700 yesterday, the weakest level since May 2012.
The Canadian dollar depreciated as much as 0.5 percent to C$1.1220, the weakest since March 24, before trading at C$1.1206, down 0.4 percent. Statistics Canada reported gross domestic product was little changed in July from a month earlier, versus a forecast of 0.3 percent growth by economists in a Bloomberg survey.
The loonie, as the Canadian dollar is called for the image of the aquatic bird on the C$1 coin, gained 1.9 percent in the past three months in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rallied 7.3 percent, the best performance, while the euro fell 2 percent and the yen lost 1.7 percent.