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By Bloomberg

The euro slumped to the weakest in almost nine years after the European Central Bank signaled it will consider embarking on large-scale government-bond purchases.

The dollar strengthened versus 15 of 16 major peers, with the Bloomberg Dollar Spot Index near to a record high on speculation the Federal Reserve will raise interest rates this year. The 19-nation euro fell as much as 1.2 percent today after ECB President Mario Draghi said last week he can’t rule out deflation in the euro area. The Australian dollar fell to a 5 1/2 year low as the yield on the nation’s 15-year bonds dropped below 3 percent for the first time.

“The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE and deepening concerns about the Greek political situation,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, said by phone today. “The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff today.”

The euro dropped 0.4 percent to $1.1959 as of 9:06 a.m. in Tokyo after reaching $1.1864, the lowest since March 2006. The shared currency lost 0.5 percent against the yen to 143.92. Japan’s currency advanced 0.1 percent to 120.37 per dollar.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.2 percent to 1,143, set for its highest close since it reached 1,144.15 on March 9, 2009, its strongest level since the gauge’s inception date of Dec. 31, 2004. The pound dropped as much as 1 percent to $1.5176, a level unseen since August 2013, and the franc lost 0.3 percent to 1.0045 per dollar.

Aussie, Kiwi

The Australian and New Zealand currencies dropped as Greece embarked on an election campaign with the current governing party saying that a victory for the main opposition Syriza party would cause default and force the nation to exit from the euro.

The Aussie fell 0.1 percent to 80.82 U.S. cents after dropping to 80.53, the weakest since July 2009. New Zealand’s kiwi slid 0.4 percent to 76.68 U.S. cents and reached an almost one-month low of 76.53 cents.

The Australian and New Zealand dollars slid last week after a Chinese manufacturing gauge slipped to the least in 18 months. China is the largest trading partner for both of the South Pacific nations. The China Federation of Logistics and Purchasing said Jan. 1 its purchasing managers’ index fell to 50.1 in December from 50.3 the previous month.

A similar survey for Australia showed manufacturing falling back into contraction in December. Australian 15-year bond yields fell as much as 12 basis points to a record 2.98 percent, while 10-year yields dropped to 2.77 percent, within seven basis points of an all-time low.

Greek Vote

The high-stakes run-up to the Jan. 25 vote returns Greece to the center of European policy makers’ attention as they strive to fend off a return of the debt crisis that wracked the region from late 2009, forcing international financial support for five EU countries.

Syriza leader Alexis Tsipras said his party would end German-led austerity imposed on Greece. Der Spiegel magazine reported Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, as polls suggest.

Draghi Signals

ECB head Draghi on Jan. 2 gave his strongest signal yet in an interview with German newspaper Handelsblatt that the central bank is likely to start large-scale government-bond purchases by saying he can’t rule out deflation in the euro area.

“The risk cannot be entirely excluded, but it is limited,” Draghi said when asked if the region could enter a spiral of declining prices, falling wages and postponed spending. “We have to act against such risk.”

The ECB president seldom gives interviews and his comments to the newspaper reflect a drive to win over Germany, a nation whose policy makers have led criticism of quantitative easing.

“The euro remained firmly out of favor as markets bank on details of upcoming ECB quantitative easing being nailed down as soon as Jan. 22,” Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a note e-mailed to clients. The dollar is poised to extend gains as “roadblocks are expected to be few and far between on a journey towards a higher Fed Funds rate.”