Euro tumbles through $1.09 as ECB bond-buying nears

LONDON — The euro tumbled through the $1.09 level to strike a fresh 11.5-year low Friday as the ECB nears the launch of its massive stimulus package and strong US jobs data raises the possibility of a US rate hike soon.

The single currency sank to $1.0845 as European markets closed, the lowest since September 2003, after strong non-farm payrolls data increased expectations that the US Federal Reserve (Fed) may move to begin hiking interest rates in the coming months.

But with the European Central bank (ECB) to begin its 1.1 trillion-euro quantitative easing stimulus on Monday, most eurozone stock markets pushed higher.

Frankfurt's benchmark DAX 30 index of top companies closed up 0.41 per cent to 11,550.97 points after reaching an intra-day record high of 11,600, while in Paris the CAC 40 rose 0.02 per cent to 4,964.35 points.

On the downside, London's FTSE 100 index ended the day down 0.71 per cent to 6,911.80 points, having posted a record closing high on Thursday after the ECB announced its bond purchases will start this week.

The euro tanked against the dollar after the US Labour Department said Friday that the US economy pumped out a stronger-than-expected 295,000 net new jobs in February.

Analyst Craig Erlam said the good jobs numbers "will only feed into expectations for a rate hike from the Federal Reserve in June".

"The rally in the dollar immediately after the release clearly supports this view...," he added.

Higher interest rates will make the dollar attractive, while the ECB's stimulus programme will flood the economy with euros and weaken its value.

ECB throws
'kitchen sink' 

Some analysts predict the eurozone unit could reach parity against the dollar amid a growing policy divergence between the ECB and the Fed.

The Frankfurt-based central bank is battling deflation risks across the 19-nation eurozone, while its US counterpart exited its own QE programme in October, and is mulling an interest rate hike later this year amid optimism over the American economy.

"Diverging policy stances between the Fed and ECB look set to persist for some time, pushing the euro towards parity over the medium-term as the search for yield drives euro area investors to increase exposure to overseas assets," RIA Capital Markets analyst Nick Stamenkovic told AFP.

However, Rabobank analyst Jane Foley cautioned that the Fed was mindful of weak US inflation.

"The ECB has indicated that it is prepared to throw the kitchen sink in with its attempts to beat deflationary risk and the resultant weakness of euro/dollar will undoubtedly help with the policy's success," she said.

She added: "We do not think that the Fed will hike [rates] until December, based on weak inflation. Consequently we think that euro/dollar will avoid parity."