EUR/USD slips below 1.05, as U.S. Dollar Index cracks 100 barrier

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Investing.com -- The euro slipped below 1.05 against the U.S. dollar on Friday, as concerns mounted for European importers that EUR/USD could reached parity sooner than expected.

In U.S. afternoon trading, the euro fell 1.32% or 0.014 to 1.0497 to reach a 12-year low. The euro dropped steadily from session-highs of 1.0636 in European trading to cap a volatile week for the currency.

The euro has depreciated more than 10% against its U.S. counterpart for the year and nearly 40% since August. More than a third of the yearly decline has occurred over the last week, as investors geared up for the start of the European Central Bank's €60 billion a month quantitative easing program, which began on Monday.

In quantitative easing, policy makers purchase securities with the newly printed currencies to raise the money supply in the wider system. Monetary easing programs, such as the ones previously undertaken by central banks in the U.S. and Japan following the 2008 Financial Crisis, are intended to drive up the market price of bonds. When bond prices increase, yields decrease lowering the rates for mortgages and other loans.

One week into the initiative, the bond buying program appears on its way of accomplishing its intended effect. Yields on 10-year government bonds are down across the board in Germany, France, Spain, Italy and Belgium. On Friday, however, the German 10-Year bunds edged up 4.03% to 0.01, after reaching record-lows last week.

Questions, though, remain on whether the European Central Bank can attract enough buyers to snatch up the sovereign debt. Over the first three days of quantitative easing, the ECB made €10.3 billion in bond purchases, according to the Wall Street Journal. In addition, Norway's oil fund announced on Friday that it will sell $860 million in European bonds from its portfolio to invest in real estate.

The U.S. dollar continued its upward path against its major global competitors. The U.S. Dollar Index, which measures the greenback versus a basket of six major currencies, cracked the historic 100 barrier underscoring the strength of the dollar. By late-afternoon, the index peaked at 100.37 to reach a level not seen since 2003.

Currency traders now await next week's critical Federal Open Market Committee meetings when the U.S. Federal Reserve could provide indications on how shortly it might raise interest rates. If the Fed decides to remove a reference to "remaining patient," in its minutes, it typically indicates that interest rates could be raised at either of its next two meetings. After next week's meeting, the FOMC will meet in June and September.

Additional gains in the dollar were softened on Friday by weaker than expected U.S. economic data. The U.S. Labor Department said in a monthly report that producer prices in February declined by 0.5%, following a drop of nearly 1% a month earlier.

Elsewhere, the University of Michigan's Consumer Sentiment Index fell sharply to 91.2 in March from a 95.4 level last month. The index was expected to rise slightly to 95.5.

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This article appears in: Investing , Forex and Currencies

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