Euro Declines as Central Bank Considers Negative Interest Rate

Banks may soon have to pay money to park cash with the ECB.

The euro dropped as the European Central Bank (ECB) is considering a negative deposit rate if more economic stimulus is needed, according to two people with knowledge of the debate.

The dollar fell versus the yen as consumer prices in the U.S. declined for the first time in six months, damping expectations that the Federal Reserve will trim monetary stimulus. The Australian dollar extended losses after the International Monetary Fund said the currency was 10 percent overvalued and that the central bank should maintain easy policy settings. The Federal Reserve releases the minutes of its October meeting at 2 p.m.

“Taking the deposit rate negative that will have negative implications on the euro,” Eric Viloria, senior currency strategist at Gain Capital Group in New York, said in a phone interview. “If banks have to pay money in order to park cash with the ECB, it’s going to make them reluctant to do so, and make investors reluctant to hold euros.”

The euro dropped 0.7 percent to 134.61 per euro at 10:46 a.m. in New York after touching 135.95, the strongest level since October 2009. The shared currency fell 0.5 percent to $1.3468. The U.S. currency slipped 0.2 percent to 99.94 yen.

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major peers, added 0.2 percent to 1,016.71.

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