SYDNEY (Reuters) - The euro nursed hefty losses early on Friday, having suffered its biggest one-day fall in nearly three years against the greenback after the European Central Bank delivered a fresh round of stimulus and promised even more if needed.
The common currency slumped over 1 percent against most of its major peers and notched a 1.6 percent drop on the dollar - the biggest one-day decline since November 2011.
The ECB cut interest rates to fresh record lows and announced plans to buy asset-backed securities (ABS) and covered bonds in October.
“While President Draghi declined to provide a size estimate for the asset purchase programme, he indicated that... the ECB aimed to increase its balance sheet back towards levels seen in 2012, which would imply a roughly 1 trillion euros, or a 50 percent increase, from current levels,” analysts at BNP Paribas wrote in a note to clients.
Euro zone equities and sovereign bonds all rallied pushing the two-year yields in Austria, Germany, the Netherlands and France into negative territory.
The euro skidded to a 14-month low of $1.2920, bringing into view the July 2013 trough of $1.2898. It hit a one-month low of 135.97 yen and carved out a 15-month trough of A$1.3798.
“Although investors may be reluctant to short the euro at these levels, we argue that the current weakening trend can continue,” analysts at Barclays said.
The common currency lost only a bit of ground on the Swiss franc as the threat of intervention from the Swiss National Bank loomed large. The euro dipped to a near two-year low of 1.2045, but quickly bounced back to 1.2064.
The drop in the euro saw the dollar index surge 1.2 percent to a 14-month high of 83.865. Against the yen, the greenback was flirting with the 2014 peak of 105.45 set in January.
U.S. data on Thursday provided fresh evidence that the U.S. economy is on track for sturdy growth in the third quarter. U.S. companies hired workers at a steady clip in August and services sector activity accelerated to a 6-1/2-year high.
Investors are now keenly waiting for the latest read on the U.S. labour market due later in the day. Analysts expect the pace of job creation to have picked up slightly in August, with a rise of 225,000 non-farm payrolls.
The latest move by the ECB served to strengthen the appeal of dollar-bloc currencies such as the Australian dollar given the steady interest rate outlook.
The Australian dollar rallied to a five-week high of $0.9393, before easing back to $0.9343. Against the yen, it surged to a 15-month high of 98.59. The Canadian dollar also held firm.
Editing by Shri Navaratnam