Brussels – The euro yesterday suffered its steepest fall in three years after the European Central Bank stunned markets by cutting interest rates and embarking on a trillion-euro asset-buying binge.

The aggressive shift sent short-term bond yields into negative territory in Germany, France, the Netherlands and Austria, giving investors an overwhelming incentive to sell euros for higher-yielding assets elsewhere.

The euro was at $1.2934, after hitting a 14-month low of $1.2920 overnight, and it seemed destined to test the July 2013 trough of $1.2898.

It hit a one-month low on the yen at 135.97, while the dollar briefly spiked to a six-year peak of 105.71 yen before steadying at 105.35.

That stood in stark contrast to the United States, where upbeat data only reinforced the case for the Federal Reserve to wind down its stimulus, driving the dollar higher and sideswiping oil and gold in the process.

The single currency’s capitulation came after ECB President Mario Draghi announced a range of rate cuts and a new plan to push money into the flagging euro zone economy.

Draghi said the aim was to expand the bank’s balance sheet back to the heights reached in early 2012, which equates to a rise of around 50 per cent or 1 trillion euros in new assets.

"The Governing Council will be pumping money into the economy while simultaneously penalising European banks that do not spend it,” said Valentin Marinov, an analyst at CitiFX.