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Last Updated : Oct 23, 2015 10:21 AM IST | Source: Reuters

ECB signals Dec easing; euro slides to 2-month low

The ECB chief Mario Draghi said on Thursday that the bank is studying new stimulus measures that could be unveiled as soon as December and is prepared to cut its deposit rate deeper into negative territory.

The euro skidded to two-month lows against the dollar on Friday after the European Central Bank opened the door to more stimulus as early as December, leaving the single currency shaken a day after it had posted one of the biggest falls in recent years.

The euro fell to as low as USD 1.1072 in early Asian trade, breaking below the USD 1.11 mark, which has been a major support for the currency in the last several weeks.

The ECB chief Mario Draghi said on Thursday that the bank is studying new stimulus measures that could be unveiled as soon as December and is prepared to cut its deposit rate deeper into negative territory.

His comments sent the euro sliding 2.0 percent overnight, its second largest fall since 2011, eclipsed only by the drop on January 22 this year when the ECB announced its current bond buying scheme.

Against the British pound, the common currency fell to 72.05 pence, near its Sept 22 low of 71.97.

In the option market, risk reversal spreads widened in favour of euro puts, or the right to sell the euro, with one month spread hitting the highest level since July.

Still, some analysts are of the opinion that it's too early to say if the euro will break out of its rough USD 1.11-15 trading range in the past couple of months, and to head below USD 1.10.

"When (ECB executive board member Benoit) Coeure said in May that the ECB could expand its QE, the euro fell below USD 1.10. But what's different now from that time is the U.S. monetary policy outlook," said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

"At that time, everyone was thinking the U.S. will raise rates soon," he added.

Although U.S. Federal Reserve policy makers have been saying rates could be raised by December, concerns over slowing global growth and a strong dollar have many investors betting that the Fed will wait at least until early next year before lift-off.

That left markets focused on the Fed's policy setting meeting on Oct 27-28.

"While Fed officials are talking about the possibility of a rate hike in December, whether it is really possible will be a focus next week," he said.

As global share prices rallied on the ECB news, boosting risk sentiment, the low-yielding yen dropped to a one-month low of 120.78 to the dollar on Thursday. It last stood at 120.705.

Furthermore, ECB's dovish comments fanned speculation that the Bank of Japan could expand its stimulus when it reviews policy next Friday.

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First Published on Oct 23, 2015 07:47 am
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