Likelihood of interest rate hike by Sept. pegged at 56%

(Bloomberg) — The euro lingered at almost an 11-year low as the European Central Bank began purchasing sovereign debt to head off deflation and spur economic growth.

The common currency touched the weakest since September 2003 before trimming losses. It slid for the past three weeks as the central bank readied the quantitative-easing program after record-low borrowing costs, including a negative deposit rate, failed to stem an economic slump.

The euro tumbled Friday after data showed the U.S. labor market strengthened more than forecast, adding to speculation the Federal Reserve will raise interest rates before year-end.

“The combination of negative rates and QE is a brave new world for foreign exchange,” said Jonathan Webb, head of foreign-exchange strategy at a unit of Jefferies International Ltd. in London. The euro’s decline “is a longer-term move, and there’s nothing stopping that trend from continuing.”

The euro was at $1.0865 at 10:13 a.m. New York time, up 0.2 percent, after dropping earlier to $1.0823. It sank 1.7 percent versus the dollar on Friday, the steepest decline since Jan. 22. The 19-nation currency advanced 0.3 percent to 131.37 yen.

“Sentiment is negative” for the euro, Georgette Boele, a currency strategist at ABN Amro Bank NV, said by phone from Amsterdam. “We still think that there’s more to go.”

The ECB’s bond-buying comes as the Bank of Japan is making unprecedented debt purchases and central banks from Sweden to Turkey to China have lowered borrowing costs to boost their economies. In contrast, the Fed is considering when to raise interest rates as the U.S. economy improves.

‘Compelling Case’