Germany (BBN)-There was no letup in the relentless pressure on the euro, with the currency tumbling to a near 12-year low against the dollar early Wednesday.
The plunge in the currency has picked up pace this week as the European Central Bank fires up its bond-purchase program.
ECB buying has driven long-term bond yields in the eurozone closer to zero as the central bank buys government debt with freshly printed euros, reports The Wall Street Journal.
Germany’s 10-year yield hit another all-time low of 0.20% in early trade on Wednesday, while yields were also at record lows across a host of other eurozone countries.
Lower yields make euro assets less attractive to investors, at a time when the U.S. Federal Reserve is moving closer to raising interest rates, boosting the dollar.
The single currency fell 0.5% on Wednesday to $1.0638, the lowest in almost 12 years.
“The start of government bond purchases by the ECB and the imminent Fed rate hikes remain the driving forces for the FX market,” said Esther Reichelt, a currency strategist at Commerzbank .
The effects of the ECB’s stimulus program and negative interest rates are forcing a wave of cash out of the eurozone, weighing on the currency, analysts and investors said.
U.S. institutional investors are piling into European stocks, but hedging their exposure to the currency, according to Roger Hallam, chief investment officer for global currencies at J.P. Morgan Asset Management.
“Meanwhile eurozone domestic investors are looking abroad for higher returns and higher yields. With various negative factors at play, we see scope for further declines [in the euro],” he said.
European stocks rose sharply Wednesday, bouncing back from Tuesday’s heavy losses, which came as the prospect of U.S. rate increases unsettled global equity investors.
The Stoxx Europe 600 index was 0.9% higher. Germany’s DAX added 1%, France’s CAC 40 was up 1.2%, while the U.K.’s FTSE 100 added 0.4%.
In commodities markets, oil prices steadied after a sharp fall, with Brent crude 0.3% higher at $56.57 a barrel.
Gold was up 0.1% at $1,161.70 an ounce.
BBN/SS-11Mar15-3:20pm (BST)