The euro hit its lowest since early 2006 on Monday, unsettled by the expectations of monetary easing and concerns about Greece that kept the currency under pressure at the back end of 2014. The dollar rose across the board, starting 2015 as many investors believe it intends to go on.
-- Dollar index hits 9-year high, pound hits 17-month low
Sharp falls in regional inflation numbers out of Germany underlined the contrast in monetary policy outlooks between the United States and most of the rest of the developed world that has sent the dollar soaring since mid-2014. While Federal Reserve minutes on Wednesday will be parsed for clues on when the US central bank will drop its pledge to keep interest rates low for a considerable time, central banks in Europe and Japan are pondering how and when to inject more stimulus.
The euro dived below $1.20, falling as low as $1.18605 in Asian trade. It recovered some ground but by 1109 GMT was again looking shaky at $1.1905, down 0.8 percent on the day. Against the yen, it hit a two-month low of 143.15 yen, down 1 percent on the day. "Increasing expectation for the ECB to deliver quantitative easing on January 22, combined with rising political concerns ahead of Greece's general election (on January 25) should maintain downward pressure on the euro," BNP Paribas strategist Michael Sneyd said.
"The bullish momentum on the dollar should persist." Sterling was down 0.5 percent at $1.5245, having fallen to a 17-month low of $1.5185 in Asian trading. The yen fared better, gaining 0.2 percent on the day at 120.26 yen per dollar.
Dealers in London said there was room for a pause in dollar strength, with some seeing strong support for the single currency around $1.1850. "I do worry that absolutely everyone is long of dollars," said one spot dealer. "But then for now it is the only game in town." The euro shed nearly 12 percent against the dollar in 2014 and the European Central Bank's president Mario Draghi late last week underscored the potential for it to move into outright money-printing shortly.
Some believe the Greek election will help stay the bank's hand this month, pushing back expectations for QE till March, but the prospect of euro zone inflation on Wednesday of zero or below underlines expectations that the bank will move. The first regional inflation numbers out of Germany suggested the national figure, due at 1300 GMT, would show a further fall in December.
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