Euro dives to 11-year low after aggressive ECB stimulus

January 23, 2015 | 09:33

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The euro dived to an 11-year low on Thursday (Jan 22) after the European Central Bank launched a massive bond-buying programme aimed at pulling the eurozone out of near-stagnation and ultra-low inflation.

Euro and Dollar (AFP)

NEW YORK: The euro dived to an 11-year low on Thursday (Jan 22) after the European Central Bank launched a massive bond-buying programme aimed at pulling the eurozone out of near-stagnation and ultra-low inflation.

The ECB said it would inject more than €1.0 trillion (US$1.13 trillion) of stimulus into the eurozone economy beginning in March. ECB chief Mario Draghi said the bank would buy €60 billion (US$68 billion) of mostly sovereign bonds per month through at least September 2016.

The euro dived to US$1.1316 after the ECB news, its lowest level since September 2003 and down more than two per cent against the greenback. Wells Fargo analyst Nick Bennenbroek expressed "surprise at the extent of the fall" in the euro since investors had widely expected a strong stimulus.

But the ECB action was more aggressive than the €50 billion (US$56 billion) pace expected. The move came after eurozone inflation turned negative in December, stoking fears that the 19-nation eurozone is on the brink of a dangerous deflationary spiral of falling prices.

"'Disappointment' is a phrase you've probably heard associated with the ECB in recent months, as market participants have been left disappointed by the lack of substantive policy decisions undertaken to fight the region's low growth, disinflationary rut," said Christopher Vecchio, currency analyst at DailyFX. "Yet today, despite all of the hoopla around the ECB for the past six weeks, President Mario Draghi delivered."

Nomura analysts said the ECB programme, in terms of its amount and duration, suggests "potential for renewed pressure on the euro."

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