Euro Tumbles Dragged Down by Periphery Bonds

The euro tumbled as a rout in bonds from the region’s periphery boosted bets the European Central Bank will expand stimulus that tends to lower exchange rates in order to quell the turmoil.

The dollar advanced against most of its 31 major peers as applications for unemployment benefits in the U.S. dropped. It plunged yesterday when a drop in retail sales prompted traders to cut bets the Federal Reserve will increase borrowing costs. The yuan rose to the strongest in seven months as the U.S. said China has shown “some renewed willingness” to let it appreciate. Australia’s dollar led declines among currencies of commodity-producing nations.

“It’s not helpful that there’s renewed pressure on peripheral sovereign bonds,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “Much of it comes amidst heightened risk aversion,” he said. “The euro is set to weaken as the European economy falls further behind the U.S.”

The euro slid 0.6 percent to $1.2759 at 8:57 a.m. New York time after climbing 1.4 percent yesterday, the steepest gain since July 2013. It slumped 0.9 percent to 134.83 yen. The dollar dropped 0.2 percent to 105.70 yen after falling 1.1 percent yesterday, the most since April 8.

ECB President Mario Draghi in Washington said on Oct. 11 that the central bank will use further unconventional monetary policy instruments if needed to support a recovery. The ECB has already implemented a negative deposit rate, offered cheap loans to banks and unveiled a plan to buy asset-backed securities.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza