Euro Slumps to 9-Year Low Against Dollar on ECB Easing Expectations

Currency Hits Lowest Point Against Dollar Since Late 2005

By JAMES RAMAGE

Updated Jan. 13, 2015 4:42 p.m. ET

The Wall Street Journal

The euro slipped to a new nine-year low against the dollar on Tuesday as investors bet the European Central Bank would announce broad measures to lift the economy and consumer prices at its meeting next week.

The euro dropped to $1.1753, the lowest since Dec. 8, 2005, before recovering to trade at $1.1773, down 0.5% for the day. The euro has fallen 0.9% against the yen to a two-month low of ¥138.73.

Investors have been abandoning the euro in droves since last May as the ECB has eased monetary policy in its effort to battle stagnant growth and falling inflation in the eurozone. The euro has dropped 16% against the greenback from a 2014 high of $1.3995 it reached on May 8.

There is growing anticipation across financial markets that the ECB will announce a large asset-purchase program, also called quantitative easing, at its meeting on Jan. 22. Such a move would boost eurozone equities but would weaken the single currency.

Falling oil prices have weighed on already low inflation expectations for economies across the globe but have added pressure on the ECB in particular to take action. The global oil-price benchmark ended Monday below $50 a barrel for the first time in nearly six years and has fallen more than 17% since the start of 2015.

As the central bank meeting draws closer, the euro remains vulnerable to sliding to new lows, said Joe Manimbo, senior market analyst at Western Union.

“It sounds like full-blown QE in the eurozone is on the way as soon as next week,” Mr. Manimbo said. “That might provide some much-needed relief to the economy, but it’s liable to come at the price of a weaker euro.”

As energy importers, eurozone member economies mostly stand to benefit from the plunge in crude, but they are also struggling to emerge from an inflation tailspin. Annual inflation in the eurozone was most recently measured at negative-0.2%, far below the ECB’s target of almost 2%.

In other trade, the dollar lost 0.5% against the yen to ¥117.82, a four-week low, as investors turned cautious heading into the afternoon. Rising concerns about low prices and stagnant growth around the globe, and the possibility both could delay a rise in U.S. interest rates, led investors toward assets they perceive as safe, including U.S. Treasurys, gold and the Japanese currency.

Amid the turbulent markets, investors are waiting to see if U.S. retail sales and consumer-price index numbers, due this week, will show the federal government can steer the economy toward steadier growth, despite its own struggles with low wages and inflation.