LONDON: The euro extended its losses against the dollar on Monday, hitting a seven-month low versus the US currency, on expectations that the European Central Bank will ramp up its monetary stimulus next month.
Most major banks have stuck firmly to the view that the euro will fall towards parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.
Comments by European Central Bank President Mario Draghi on Friday reinforced expectations for the ECB to unveil more monetary stimulus at its policy meeting on December 3, renewing pressure on the euro.
Draghi said the ECB is ready to act quickly to boost anaemic inflation in the euro zone.
The euro was quoted at $1.0611/14, down 0.3 percent on the day, according to Thomson Reuters data. The euro slipped to $1.0600 at one point on trading platform EBS, its lowest level since April.
“Our view of the euro stays firmly negative,’’ said Heng Koon How, senior FX strategist for Credit Suisse private banking and wealth management in Singapore.
The yield spread between two-year US Treasuries and German Bunds has widened in the dollar’s favour due to the monetary policy divergence between the Fed and the ECB, weighing on the euro, he said.
Two-year US Treasury yields are now 130 basis points above two-year German bond yields, with the gap having widened from around 81 basis points in mid-October.
Against the Japanese currency, the euro fell to 130.57 yen at one point on trading platform EBS, its lowest level since April.
“The euro seems likely to stay soft going into the (ECB) meeting,’’ said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
