The euro extended its longest uninterrupted losing streak since its creation and fell below the $1.18 mark for the first time in more than nine years, to trade at about the same level as when it was introduced in January 1999.

The common currency was first launched at an exchange rate of $1.1789 on January 4 1999 and fell below that level before recovering in the early 2000s.

The euro hit a low of $1.1756, later clawing back some losses to trade above $1.18, a 0.2 per cent loss on the day. It was the tenth day in a row the single currency had fallen, the longest streak of falls since the euro was launched.

The single currency has tumbled in recent months as the eurozone economy struggles to sustain a recovery and inflation continues to fall, ratcheting up expectations that the European Central Bank will widen its bond-buying programme to include sovereign debt.

In contrast, the US dollar index, which measures the currency against a weighted basket of its peers, continued to head toward its highest level since November 2005 as investors bet that the US Federal Reserve will increase interest rates in the next half year.

Although inflation remains subdued, the US economic recovery is expected to spur the Fed to lift interest rates for the first time since 2006 — perhaps as early as April. That has fuelled bets on the dollar, propelling the dollar index up to a daily high of 92.52, close to the 92.63 intraday high the gauge touched more than nine years ago.

David Bloom, head of FX research at HSBC, predicted that the move was just the start of a strong dollar rally in 2015, as monetary policy diverges from Europe and Japan, where central banks are still firmly in easing mode.

“The dollar bull run has further to go,” he wrote in a note. “A year ago we suggested that dollar strength would be the dominant theme in currency markets during 2014, a view vindicated as the dollar was the world’s best performing currency. We expect a repeat performance in 2015.”

Mr Bloom argued that while the dollar had climbed about 10 per cent since last summer, it had been a modest rally compared to past periods of greenback strength. The “mega rallies” of the early-1980s and late-1990s saw the dollar index climb 90 per cent and 50 per cent respectively, he wrote, and the average US dollar rally has been 20 per cent.

A stronger dollar would be a boon to Japan and Europe, where weaker currencies would help buttress economies and lift inflation. But some money managers and analysts fret it could be bad news for the developing world.

Hedge fund manager Stephen Jen this week wrote a note to clients predicting that there could be some “breakages” in emerging markets in the coming year, as the Fed raises rates, supporting the dollar and increasing the burden of dollar-denominated debt.

Over the past decade, emerging markets have accumulated sizeable dollar liabilities, he wrote. “We see the Fed as the ‘spark’ and the cumulative capital flows into emerging markets in the past decade as the large and dry ‘kindling’. At some point, there will likely be ‘breakages’ in some emerging market economies, which in turn could propel further depreciations in their currencies.”

Additional reporting by Alice Ross

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