The euro came close to cracking on Wednesday as feverish speculation of further policy stimulus in the euro zone drove bond yields to all-time lows and lifted Asian stocks to peaks not seen in almost seven years.
The groundbreaking call by European Central Bank President Mario Draghi for more action on both the monetary and fiscal fronts has markets wagering that fresh steps could come as soon as next week when the central bank's governing council meets.
"The comments have raised expectations that the ECB could announce even more monetary policy stimulus over coming months," said Peter Dragicevich, a senior currency and rates strategist at Commonwealth Bank of Australia. "The next programme could include broad-based asset purchases."
He added that euro zone inflation data due on Friday was likely to show a new low for this cycle of just 0.3 percent and add to the sense of urgency on policy.
"This will continue to depress swap rates across the curve and keep the euro heavy."
The single currency broke down to a new 11-month trough of $1.3154 in Asia, taking it nearer to the Sept. 6 low of $1.3104 which also doubles as major chart support.
The euro's weakness helped lift the U.S. dollar index through its September peak to reach its highest in 13 months at 82.698. The greenback could only manage a minor gain on the yen to 104.07, short of Monday's 7-month peak at 104.49.
The prospect of yet further lashings of liquidity in Europe was taken as a positive for emerging markets and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.4 percent to its highest since January 2008.
After a solid start Japan's Topix turned flat after running into stiff chart resistance in the 1,290/1,300 zone where it has peaked a number of times in the past.
On Wall Street the S&P 500 had ended Tuesday above the 2,000 mark for the first time, adding 0.11 percent. The Dow firmed 0.17 percent and the Nasdaq 0.29 percent.
EURO YIELDS NOSEDIVE
Investors were cheered by solid data with the Conference Board measure of consumer confidence rising to its highest level since October 2007.
Durable goods orders jumped a massive 22.6 percent thanks entirely to bumper demand for Boeing aircraft, while upward revisions to past data suggested business investment was stronger than first thought.
In Europe, the broad FTSEurofirst 300 index had closed up 0.75 percent.
Yields on 10-year German debt fell a basis point to a record closing low of 0.943 percent, while negative yields on two-year paper meant investors were paying for the pleasure of lending to Berlin.
The rally on the periphery has been even larger with 10-year yields down 8 basis points on Spanish bonds and 5 basis points on Italian debt. Spain already pays less than the United States to borrow and Italy is about to be granted that privilege.
Markets also kept a wary eye on developments in Ukraine after Russian President Vladimir Putin met Ukraine's Petro Poroshenko for two hours of one-on-one talks after six hours of wider negotiations with European Union officials.
Poroshenko said a "roadmap" would be prepared to agree to a ceasefire as soon as possible in east Ukraine, while Putin emphasised it was up to Kiev to work out conditions with separatist rebels.
In commodity markets, gold was hovering at $1,284.04 an ounce after failing to sustain a bounce to $1,290.80.
Oil prices were steadier for the moment after their long decline. Brent crude inched up 26 cents to $102.76 a barrel, while U.S. crude rose 7 cents to $93.93.
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Updated Date: Dec 21, 2014 13:18:52 IST