The euro plunged below $1.12 for the first time in more than 11 years on Friday, a day after the European Central Bank said it would pump over a trillion euros into the euro zone economy, and two days before a national election in Greece. The euro shed over 2 percent to hit $1.1115, its lowest since September 2003, as traders sold the currency following the ECB's announcement that it would buy government bonds to revive growth and prevent deflation from setting in.
After a similar drop on Thursday, the single currency was down almost 8 percent since the start of the year and on track for its biggest monthly fall since the depths of the financial crisis in early 2009. "The big question is can it (the euro) maintain this sort of pace," said Rabobank senior currency strategist Jane Foley. "I would suggest that whilst (ECB President Mario) Draghi has been massively successful in really squeezing out this huge impact on the currency markets from QE ... by whipping the market into this frenzy of anticipation and then giving them more than they anticipated ... other central banks will be reacting too."
Foley said that while she expected the euro to fall further, its decline would slow, and she would wait until the US Federal Reserve's policy meeting next week, which could bring a more cautious tone in light of the ECB decision, before changing her euro year-end forecast of $1.10. The Swedish crown tumbled 1.2 percent against the dollar to an almost six-year low of 8.3697 crowns and was far less buoyant against the euro than many of its peers, after a Riksbank official said the bank was technically ready to launch its own quantitative easing programme if necessary.
"Our base case is that the Riksbank will announce a QE program of SEK 15-20 bn per month ... which could be launched as early as March/April," Citibank Scandinavian economist Tina Mortensen said in a note sent to clients on Friday. Citi expects the repo rate to be cut into negative territory, she added. The euro is set for a further trial as global markets await snap Greek elections on Sunday. A win for the leftist Syriza party, which has pulled ahead in opinion polls, could trigger a standoff with Greece's EU/IMF lenders.
The shared currency also set a fresh seven-year low versus sterling on Friday, falling to as low as 74.295 pence , down 1.5 percent on the day. It also tumbled over 2 percent to a 16-month trough of 130.91 yen. Data on Friday showing the euro zone economy began 2015 in better shape than expected did nothing to alleviate the pressure on the single currency.