The euro fell to a two-year low versus the dollar and weakened against all of its 16 most-traded peers as traders used the shared currency to fund purchases of higher-yielding assets.
The 17-nation currency dropped to the weakest on record versus Australia’s dollar five days after the European Central Bank cut its key interest rate to an all-time low 0.75 percent. Sweden’s krona reached its strongest against the euro since 2000 as industrial production fell less than forecast, and Mexico’s peso gained versus the dollar on bets Europe’s crisis will ease.
“The euro is now the main funding currency, and everyone wants to be short euro,” said Sebastian Galy, a senior foreign- exchange strategist at Societe Generale SA in New York. “The dollar is no longer the main funding currency.” A short position is a wager a currency will decline in value.
The euro depreciated as much as 0.6 percent to $1.2235, the lowest since July 2010, before trading at $1.2255 at 1:36 p.m. New York time, down 0.5 percent. The common currency declined 0.6 percent to 97.38 yen and touched 97.23 yen, the weakest since June 5. The yen gained 0.1 percent to 79.47 per dollar.
Australia’s dollar climbed 0.5 percent to A$1.2002 per euro and touched A$1.1988. The Aussie was little changed at $1.0209 and slipped 0.1 percent to 81.12 yen.
Investors sell currencies of nations with low borrowing costs to purchase those with higher yields in the carry trade. Japan’s yen and the U.S. dollar are traditional funding currencies because the nation’s central banks are holding interest rates at almost zero. The Reserve of Australia’s cash rate target is 3.5 percent.
The 17-nation currency dropped to the weakest on record versus Australia’s dollar five days after the European Central Bank cut its key interest rate to an all-time low 0.75 percent. Sweden’s krona reached its strongest against the euro since 2000 as industrial production fell less than forecast, and Mexico’s peso gained versus the dollar on bets Europe’s crisis will ease.
“The euro is now the main funding currency, and everyone wants to be short euro,” said Sebastian Galy, a senior foreign- exchange strategist at Societe Generale SA in New York. “The dollar is no longer the main funding currency.” A short position is a wager a currency will decline in value.
The euro depreciated as much as 0.6 percent to $1.2235, the lowest since July 2010, before trading at $1.2255 at 1:36 p.m. New York time, down 0.5 percent. The common currency declined 0.6 percent to 97.38 yen and touched 97.23 yen, the weakest since June 5. The yen gained 0.1 percent to 79.47 per dollar.
Australia’s dollar climbed 0.5 percent to A$1.2002 per euro and touched A$1.1988. The Aussie was little changed at $1.0209 and slipped 0.1 percent to 81.12 yen.
Investors sell currencies of nations with low borrowing costs to purchase those with higher yields in the carry trade. Japan’s yen and the U.S. dollar are traditional funding currencies because the nation’s central banks are holding interest rates at almost zero. The Reserve of Australia’s cash rate target is 3.5 percent.
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