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Euro Drops to 4 1/2-Year Low as ECB Splits From Fed
The euro slumped to the lowest in 4 1/2 years against the U.S. dollar after the European Central Bank signaled it will embark on large-scale government-bond purchases as the Federal Reserve moves closer to raising interest rates.
The 19-nation common currency slid for a third week after ECB President Mario Draghi said he can’t rule out deflation in the euro area. The yen also declined for a third week. The ruble plummeted 9.4 percent to lead emerging-market peers lower. The dollar advanced gained against all of its 16 major peers before a report next week that may show the jobless rate fell to a 6 1/2-year low.
“The U.S. labor market is performing well and the unemployment rate is falling further,” Ralf Umlauf, head of research for Helaba Landesbank Hessen-Thueringen in Frankfurt, said by phone yesterday. “In the euro zone, it’s a completely different picture. We have still very high unemployment rates near the historical top. So that’s the reason why we have the divergence in monetary policies.”
The euro dropped 1.5 percent last week to $1.2002 yesterday in New York after falling to $1.2001, the lowest since June 2010. The shared currency lost 1.3 percent against the yen to 144.63. Japan’s currency traded at 120.28 per dollar.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.9 percent in the week to 1,141.02. It increased 11 percent last year, the biggest gain in data going back to 2005.
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Germany believes euro zone could cope with Greece exit: report
The German government believes that the euro zone would now be able to cope with a Greece exit if that proved to be necessary, Der Spiegel news magazine reported on Saturday, citing unnamed government sources.
Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, Der Spiegel reported.
"The danger of contagion is limited because Portugal and Ireland are considered rehabilitated," the weekly news magazine quoted one government source saying.
In addition, the European Stability Mechanism (ESM), the euro zone's bailout fund, is an "effective" rescue mechanism and was now available, another source added. Major banks would be protected by the banking union.
The German government in Berlin could not be reached for comment.
It is still unclear how a euro zone member country could leave the euro and still remain in the European Union, but Der Spiegel quoted a "high-ranking currency expert" as saying that "resourceful lawyers" would be able to clarify.
According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.
The Greek election was called after lawmakers failed to elect a president last month. It pits Prime Minister Antonis Samaras' conservative New Democracy party, which imposed unpopular budget cuts under Greece's bailout deal, against Tsipras' Syriza, who want to cancel austerity measures and a chunk of Greek debt.
Opinion polls show Syriza is holding a lead over New Democracy, although its margin has narrowed to about three percentage points in the run-up to the vote.
German Finance Minister Schaeuble has already warned Greece against straying from a path of economic reform, saying any new government would be held to the pledges made by the current Samaras government.
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EUR/USD Forecast Jan. 5-9 2015 EUR/USD
EUR/USD took a deep dive in the week that put us into 2015. The pair is trading at the lowest levels since 2010. Are further falls awaiting us or is a big correction awaiting? Markets are returning to strong form in the first full week of 2015. CPI is the big release in a busy week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
In the last week of 2014, news broke that Greece is headed to general elections. While this was expected by markets, it could certainly continue weighing on the euro during January. We also heard some German opposition to QE, but given the early signs of December’s deflation coming from Spain, can they really stop it? Probably not, if we listen to Draghi. Also the change in flows is a euro negative. Looking to the US, we had some mediocre numbers, but the general picture is still of solid growth.
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All eyes on Berlin as ECB readies bond-buying scheme
In August 2012, during a visit to Canada, German Chancellor Angela Merkel swept aside doubts about her support for Mario Draghi and his promise, weeks before, to do whatever it takes to preserve the euro.
The pledge by the Italian president of the European Central Bank met a storm of criticism in Germany. Yet Merkel told reporters gathered in the Canadian parliament in Ottawa that Draghi's remarks were "completely in line" with her own approach to the crisis.
Her comments helped convince markets that Draghi had the political support to back up his bold words with action, calming fears of a catastrophic euro breakup.
Two and a half years on, the crisis in Europe's single currency bloc has shifted from acute to chronic and once again it has fallen to Draghi to come to the rescue.
As Europe stumbles into 2015, dogged by weak growth and the prospect of deflation, Draghi is on the verge of launching mass purchases of government bonds with new money - also known as quantitative easing (QE) - in the hopes of jolting Europe's economy into life.
But this time, it is unclear whether he can count on the same clear support from Berlin.
Without it, the effectiveness of any QE program could be undermined. More fundamentally, a rift between Germany and the ECB would herald a dangerous new phase for Europe in which the bloc's two most important shapers of policy are at odds.
In a rare four-page interview with German daily Handelsblatt on Friday, Draghi appeared to go out of his way to reach out and avert such a clash, saying the risk of the ECB failing to preserve price stability had risen and it may need to act to meet its mandate.
"Germany's position on the QE program is arguably the single most important issue for the ECB right now," said Marcel Fratzscher, head of the DIW economic institute in Berlin and a former official at the ECB. "Support from both Merkel and (Finance Minister Wolfgang) Schaeuble will be absolutely vital."
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Greek Euro Membership in Balance in Jan. 25 Voting, Samaras Says
Greece’s political parties embarked on a flash campaign for elections in three weeks that Prime Minister Antonis Samaras said will determine the fate of the country’s membership in the euro currency area.
The premier said Greece would be driven into default and out of the 19-nation European single currency by the policies of Syriza, which has vowed to increase wages, expand the number of government jobs and persuade the euro area to write off some Greek debt.
“What Syriza says would lead to bankruptcy,” the 63-year-old Samaras said yesterday in a speech in the central city of Larissa. “What they say can’t be done and would drive the country into a huge adventure.”
Syriza leader Alexis Tsipras said his party would end German-led austerity. Der Spiegel magazine reported that Chancellor Angela Merkel is ready to accept a Greek euro exit, a development that it sees as inevitable and manageable if Syriza wins, as polls suggest.
The high-stakes run-up to the Jan. 25 vote returns Greece to the center of European policy makers’ attention as they strive to fend off a return of the debt crisis that wracked the region from late 2009, forcing international financial support for five EU countries. While Greek 10-year bond yields retreated to about 9 percent last week from 44.21 percent in 2012, the relative improvement in yields from Italy (GBTPGR10) to Ireland suggests that so far Greece has been isolated and the threat of contagion removed.
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Germany's Gabriel says Berlin wants Greece to stay in euro zone
The German government wants Greece to stay in the euro zone and there are no contingency plans to the contrary, Vice Chancellor Sigmar Gabriel said on Sunday, responding to a media report that Berlin believes the currency union could cope without Greece.
Gabriel, the Economy Minister and leader of the centre-left Social Democrats (SPD), also told the Hannoversche Allgemeine Zeitung that the euro zone had become more resilient in recent years and could not be "blackmailed".
"The goal of the German government, the European Union and even the government in Athens itself is to keep Greece in the euro zone," Gabriel said in the interview to appear on Monday.
"There were no and there are no other plans to the contrary," he said, and noted the euro zone had become far more stable in recent years.
"That's why we can't be blackmailed and why we expect the Greece government, no matter who leads it, to abide by the agreements made with the EU," he said referring to the Jan. 25 Greek election and possible change of government.
Earlier a spokesman for Chancellor Angela Merkel, Georg Streiter, said the German government expects Greece to stick to the terms of its 240-billion euro EU/IMF bailout agreement.
Streiter declined to comment on a report in Der Spiegel magazine on Saturday that said Berlin had shifted its view and now believed the euro zone would be able to cope with a Greek exit, or "Grexit", if necessary.
Der Spiegel reported that Berlin considers "Grexit" almost unavoidable if the left-wing Syriza opposition party, narrowly ahead in opinion polls, wins Greece's election. Syriza wants to cancel austerity measures and a chunk of Greek debt.
But the report said that both Merkel and Finance Minister Wolfgang Schaeuble now believe the euro zone has implemented enough reforms since the height of its debt crisis in 2012 to make a potential Greek exit manageable.
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Move against the United States: Russia advises EU to phase out the TTIP
Russia has presented a startling proposal to overcome the tensions with the EU: The EU should renounce the free trade agreement with the United States TTIP and enter into a partnership with the newly established Eurasian Economic Union instead. A free trade zone with the neighbors would make more sense than a deal with the US.
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Euro Drops to Lowest Since March 2006
The euro slumped to the weakest in almost nine years after the European Central Bank signaled it will embark on large-scale government-bond purchases as the Federal Reserve moves closer to raising interest rates.
The 19-nation common currency extended declines today after falling for a third week as ECB President Mario Draghi said he can’t rule out deflation in the euro area. The greenback strengthened versus all 10 major developed-market peers. The Australian dollar fell to a 5 1/2 year low as the yield on the nation’s 15-year bonds dropped to an all-time low.
“The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE and deepening concerns about the Greek political situation,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, said by phone today. “The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff today.”
The euro dropped 0.5 percent to $1.1943 as of 7:46 a.m. in Tokyo after reaching $1.1864, the lowest since March 2006. The shared currency lost 0.5 percent against the yen to 143.93. Japan’s currency traded at 120.58 per dollar.
The Aussie dollar was little changed at 80.86 U.S. cents after dropping to 80.65, the weakest since July 2009.
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Spanish jobless claims fall by 64,400 in December
he number of unemployed people in Spain fell for the second consecutive month in December, easing concerns over the health of the euro zone’s fourth largest economy, official data showed on Monday.
In a report, Spain’s Employment Ministry said the number of unemployed people declined by a seasonally adjusted 64,400 last month, compared to expectations for a drop of 72,000. The number of unemployed people fell by 14,700 in November.
EUR/USD was trading at 1.1960 from around 1.1958 ahead of the release of the data, while EUR/GBP was at 0.7820 from 0.7818 earlier.
Meanwhile, European stock markets were lower after the open. Spain’s IBEX 35 shed 0.7%, the EURO STOXX 50 dipped 0.5%, France’s CAC 40 lost 0.6%, Germany’s DAX ticked down 0.2%, while London’s FTSE 100 edged 0.1% lower.
German state CPIs look weak – EUR/USD pressured
Inflation data coming from the various German states points to a significantly lower CPI read for December. Could we see outright deflation in the euro-zone already for the of 2014?
The full German release is due later on, and the euro awaits it in fear.
Some year over year figures:
While German inflation is probably due to remain positive for the month of December, the locomotive’s numbers have always been above the euro-zone average and we could certainly see a negative number for the whole euro-zone. It is released tomorrow.
For example, Spain reported a fall of no less than 1.1% in prices. This was released before the turn of the year and has already hurt the common currency.
Also the worries about Greece weigh.
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