A New Year for the Euro, but same old story

The euro dropped across the board on Monday, hitting its lowest level against the USD in 9 years!

The reason for the drop came as concerns over lowering inflation in the Eurozone along with comments from president Mario Draghi that the risk is increasing that they will not be able to fulfil the ECB’s mandate to preserve price stability. Speaking in an interview with the German newspaper Handelsblatt, Mr Draghi said: “We are making technical preparations to alter the size, pace and composition of our measures in early 2015.”  Such comments led investors to hedge against the euro on the basis its likely we will see the ECB introduce quantitative easing over the coming months.

In addition to this, there were reportedly comments from Germany suggesting the euro zone would be fine without Greece although a spokesman for the German Chancellor Angela Merkel said yesterday that German still favours stabilising the bloc without losing any members. The comments come admin concern over the political uncertainty within Greece and the upcoming general election at the end of this month where fears over whether the anti-austerity, left wing Syriza party will take control of the country.

It wasn’t just the euro that was on the back foot, although not to the same extent, as the pound spent the day losing ground across many of the major pairs. We lost 2 cents against the Aussie and Kiwi dollars, a cent against the US dollar and at the low of the day a cent against the ailing euro, although with the issues previously mentioned we did see some of those losses clawed back once the US markets opened. In a day of limited ecostats, with UK constructors PMI the only one for the UK to go on. This came out below expectations at 57.6 rather than the 59 forecast compared to the much more positive EU Sentix investor confidence stat, showing a reading of 9 rather than -0.9. Of course, although very good, was clearly being rained on from Greece, so it was the US dollar that sentiment lay with as the greenback continues to increase in value.

Today is a public holiday in much of europe although we do still see some important Eurozone ecostats. As with the UK, the EU and Germany release their Markit services PMI figures  for December. Later on this afternoon it’s the US’s turn for services PMI along with Markit composite PMI, factory orders and the key ISM non-manufacturing PMI at 3pm. 

With sentiment seemingly with the US and the clear influence sentiment is having on all currency pairs at present, if you have a transfer to make overseas, stay in touch with the team here at CI and keep abreast of all the currency market news and movements.