LONDON: The euro skidded to a 10-day low against the dollar on Tuesday, leaving it on track for its worst quarter ever, as investors bet the monetary policies of the euro zone and the United States increasingly would diverge.
The euro has fallen 11 percent against the dollar since the start of January, driven by the European Central Bank's launch of a 1.1 trillion-euro quantitative easing programme and the contrasting expectations the U.S. Federal Reserve will start raising interest rates this year.
Highlighting the deflationary pressures the ECB is trying to ward off, data released on Tuesday showed euro zone consumer prices fell again in March, as expected. But the decline was the smallest this year, indicating the price of goods and services could start rising again soon.
On Tuesday, though, investors focused on worries over whether Greece can secure financial aid before it runs out of cash in three weeks, pushing the euro down as much as 1 percent to $1.0713. Greece and its lenders had failed to reach an initial deal on reforms, officials told Reuters earlier on Tuesday.
"If we're looking at what's the next trigger point for another move lower for the euro ... I think it will be Greece," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
"If they (euro zone policymakers) have to put in place additional measures to keep Greece in, such as capital controls, then you have a situation where the monetary union itself is under question."
Helped by its rise against the euro, the dollar was also on track for its best quarter since 2008 against a basket of major currencies. It gained 9 percent as the Fed moves towards raising interest rates while most other major central banks are loosening monetary policy.
The greenback got a further boost on Tuesday from month-end rebalancing flows, traders said. The dollar index was up 0.6 percent at 98.511.
Stephen Gallo, European head of FX strategy at BMO Capital Markets in London, said the euro/dollar pair would depend more on U.S. data, specifically non-farm payrolls numbers due on Friday.
"While the data in the euro zone have turned up and forward-looking indicators have turned up, it's still a QE currency and for the time being even if the data are a little weaker in the U.S., the dollar is not a QE currency," he said.
"So there's going to be limited ability for the euro to rally even as the economic data to turn upward.
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