The euro struck a new nine year low today as reaction continued to yesterday's negative December price index, bringing the united currency close the inception point where it began 16 years ago.
The single currency dropped as low as 1.1754 against the dollar in European markets, the weakest since December 2005 and within 20 points of its opening rate of 1.1736 on January 1st 1999, when it began commercial trading for the 11 original members.
In the two years that followed its launch the euro moved steadily lower, reaching its nadir versus the greenback in late October 2000 at 0.8230. It did not regain its starting level until May 2003. Since then the weakest the euro has been against the dollar was 1.1640 in November 2005.
The euro decline came after the twelve month consumer price index for the EMU registered -0.2 percent in December, a sharp drop from November's 0.3 percent rate and the first month of non-recessionary deflation in the history of the monetary union.
Today's German factory orders for November -2.4 percent on expectations for a 0.8 percent decrease, and after October's upwardly revised 2.9 Percent gain, raised concerns that the Eurozone’s largest and strongest economy is succumbing to the economic malaise that has crippled France and Italy.
Yesterday's flash estimate for CPI increases the possibility that the ECB will commence a full blown quantitative easing program at their January 22nd meeting by purchasing the sovereign debt of EMU members. President Mario Draghi has hinted many times that such a policy is the next step in the bank's fight to prevent a deflationary spiral in prices, production and wages.
The ECB is forbidden by its charter from funding the budget deficits of its member nations. Germany has long maintained that buying European government bonds is tantamount to the prohibited lending.
It is unknown whether the latest Europe statistics are dire enough to overcome German objections to the purchase plan, but markets are betting that ECB will be forced to do something to satisfy market expectations at its next meeting.
Chief Market Strategist
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