LONDON: The euro fell below its 1999 launch rate against the dollar for the first time in over nine years on Wednesday after an adviser to Europe's highest court said an ECB bond-buying programme was legal under certain conditions.
As investors worried about global growth, the safe-haven yen rose to a 2-1/2-month high against Europe's common currency and a one-month high versus the dollar.
The euro fell against the dollar following the adviser's opinion, hitting a nine-year low of $1.1728, down 0.3 percent on the day and below the psychologically important $1.1747 level at which the single currency first traded on Jan. 4, 1999.
The advocate general of the European Court of Justice, Pedro Cruz Villalon, advised judges to approve the European Central Bank's so-called OMT programme -- a stimulus measure initially launched in 2012 -- on condition the ECB was not directly involved in an assistance programme for countries that benefit. Though a final ruling will not be made for several months, traders said an adverse or complicated recommendation would have given the ECB less room for manoeuvre at its next policy meeting on Jan. 22, when many expect the central bank to launch a full-scale quantitative easing programme.
"My feeling is that this gives greater weight to Draghi, and perhaps on Jan. 22 he's going to come in with greater weight than expected," said Neil Mellor, a currency strategist at Bank of New York Mellon in London.
"It's a sort of mini rebuff to Germany again." Josh O'Byrne, a currency strategist at Citi in London, said the opinion should drag the euro marginally lower, in that it cleared the way for the ECB to announce a QE progamme next week.
The World Bank on Tuesday lowered its global growth forecast for both 2015 and 2016 due to disappointing economic prospects in the euro zone, Japan and some major emerging economies that offset the benefit of lower oil prices. As commodities slid further, the dollar dropped to a one-month low of 116.54 yen, down over 1 percent on the day. Against the euro, the yen hit a 2-1/2-month low high of 137.04 yen.
"At the moment, there is no fresh material on which to sell the yen, since it's all focused on the commodity prices, all pushing the dollar down," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.
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