Euro Declines against the Dollar on Expectations of Further Stimulus

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Euro Declines against the Dollar on Expectations of Further StimulusThe euro plunged versus the U.S. dollar on Monday on speculation that the European Central Bank may roll out additional monetary stimulus this week.

The 18-nation currency declined to $1.3610, close to $1.3586, the lowest level in three months which it hit last Thursday. The currency also declined against the sterling pound to 81.25 pence.

The ECB financial stability committee, which will meet this Thursday, may introduce measures such as reduced interest rates, asset-purchase programs and negative deposit rates.

“With market participants unwilling to be brave enough to take against-consensus euro long positions ahead of the meeting, and the potential for an upside surprise in US data, we expect euro/dollar to remain under pressure,” Petr Krpata, a currency strategist at ING, told Reuters. “The euro should move back closer to $1.3600 level, while the 200-day moving average of $1.3644 is now an important level to watch.”

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Most market participants expect the US ISM manufacturing data for May that will be released today to go up to 55.5 from April’s reading of 54.9.

The dollar also went up 0.2 percent to 101.95 yen, while the euro remained slightly unchanged at 138.77 yen. The yen was battered by reports of mergers and acquisitions, which point to increased outflows, while positive Chinese data increased the investors’ desire to take on more risk.

Reports show that Japanese insurance firm Dai-ichi Life Co is currently engaged in negotiations to take over U.S. insurance firm Protective Life Corp for more than $5 billion. China’s factory activity in May accelerated the most in five months, boosting prospects of a stronger growth in the second quarter.

The Australian dollar fell around 0.6 percent to trade at $0950 on declined building permits, adding more weight to speculation that the Reserve Bank of Australia will maintain its benchmark rate at 2.5 percent, a record low. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com