Market expectations of more ECB QE drives euro lower

Asian markets are rallying on news that the European Central Bank is considering expanding its stimulus program in December as it weighs all available options to jumpstart Europe’s stagnating economy. ECB chief Mario Draghi hinted Thursday that the bank might extend its 1.1 trillion euro ($1.2 trillion) bond purchase program and also take other measures, including cutting a key interest rate.

The prospect of additional ECB assistance provided a hefty boost to sovereign Eurozone bonds with German 10-year yields dropping 7bp to 0.50% while Spanish 10-year yields tumbled 15bp to 1.60%.

Eurozone bourses earlier registered even larger gains after ECB President Mario Draghi’s post October meeting news conference indicated his willingness to expand or extend the bank’s monthly €60bn (US$66.5m) quantitative easing programme to help push inflation back towards its 2% target.

The euro dropped sharply after Mario Draghi and the ECB indicated that more QE and even lower interest rates could be on the way as early as late this year.

The euro fell more than two cents against the dollar to $1.11, taking it back to levels it saw in August, when markets actually believed the Fed would move in 2015.

The euro is down more than 8 percent against the dollar year-to-date, and has fallen by 12 percent over the past year.

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