The euro fell to a more than 2-year low against a broadly stronger dollar on Monday after a leading European Central Bank policymaker said government bond buying could be valuable in addressing the "massive" weakening of the euro zone economy. Austrian central bank chief Ewald Nowotny has been a bellwether in the past for shifts in ECB policy and has previously been seen as part of the German-led group on the ECB's governing council opposing such outright money-printing.
His comments helped push the euro back by around a third of a percent in morning trade against a dollar still feeling the positive effects of Friday's surprisingly good US jobs numbers. "Nowotny's comments have just reinforced the market's view that the ECB is inching towards outright quantitative easing, we think probably in January, and that is continuing to hurt the euro," said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in London.
Sterling and the New Zealand and Australian dollars had been the main losers among major currencies early in Europe, both the Aussie and the kiwi hurt by trade numbers from China showing a sharp drop in imports and another 2 percent slide in oil prices. Sterling and the Aussie recovered most of those losses, but the kiwi traded almost 0.9 percent lower by 1130 GMT while Norway's crown - exceptionally sensitive to oil prices - dropped around half a percent against both the euro and dollar.
"With the kiwi, its more the move higher in US yields than anything," said Hardman. "It's really a big story of dollar strength." The Swiss franc, another very low yielding currency, fell to an 18-month low of 0.9818 francs per dollar. Among big events for markets this week are the European Central Bank's second offer of targeted loans (TLTRO) to banks and speeches by a handful of US Federal Reserve policymakers ahead of next week's final policy meeting of the year.
"The jobs numbers supported the dollar and we expect this trend to continue ahead of the Fed meeting as interest rate expectations continue to adjust," said Josh O'Byrne, a strategist with Citi in London. Overall, the dollar was up another 0.1 percent against a basket of currencies. Dealers said the yen was supported by around $2 billion worth of options expiries at 121.50 yen per dollar, putting a cap on the dollar's strength.
Most major banks continue to predict further gains for the dollar against its major peers in 2015, although the surge past 120 yen has left some wondering how much juice there still is in the yen trade, at least for now. There is also Japan's national election next Sunday, currently seen as likely to give a boost to Prime Minister Shinzo Abe and reflationary policies which weaken the yen. The euro fell to a low of $1.2247 after Nowotny's comments.
"We expect the euro to continue to weaken in the week ahead," analysts from French bank BNP Paribas said in a note to clients. "Another low TLTRO uptake could put some upside pressure on euro front-end rates. However, low demand would also increase the chances of an increase in asset purchases (by the ECB) early next year."
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