NEW YORK: Investors on Wednesday sent the euro to a nine-year low after data showed euro zone prices fell for the first time since 2009, increasing pressure on the European Central Bank to loosen monetary policy.
Expectations the ECB will take bold action and flood the euro zone with cash in order to stimulate economic growth and inflation rekindled the winning trade of the last six months of selling the euro short on the expectation it will continue to lose value.
"The market is back to fully pricing in ECB easing at the end of the month. The inflation data didn't really alter the expectation of easing but it is like a final nail in the coffin on that argument," said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.
"When we started this year, the risk off in equities and commodities caught people by surprise and they had to take profits on winning positions which was short euro. Now that we're clear of that, people are going to put back on those short-euro positions," he said.
The euro fell 0.62 percent to $1.18160 on the EBS trading platform, its weakest point since January 2006.
A rebound in global equity markets has undermined the safety trade of buying Japanese yen. The euro pulled up from a two-month low to trade at 141.165 yen, a gain of 0.29 percent .
The U.S. dollar recouped more than 1 percent against the yen and was off Tuesday's three-week low to trade at 119.65 yen .
The European statistics office reported euro zone inflation turned negative for the first time since 2009, with plunging oil prices driving a bigger-than-expected decline.
Against a basket of currencies, the dollar powered to a fresh nine-year high at 92.265, up 0.82 percent ahead of the release of minutes from the Federal Reserve's December policy meeting due at 2 p.m. (1900 GMT). The minutes will be scoured for any clues as to when benchmark U.S. interest rates might begin to rise.
A divergence in monetary policies between the Fed and the ECB is seen keeping the greenback at elevated levels for the foreseeable future.
After Brent crude oil fell below $50 a barrel for the first time since May 2009, oil-rich Canada's dollar hit a 5-1/2-year low at C$1.1870 against its U.S. counterpart .
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