Euro Crashes Amidst Market Mayhem

19 January, 2015

Rob Bastin

Last week was one of the most turbulent and busiest weeks on the currency markets for some time. The first highlight was poor inflation figures for the UK at 0.5%, which actually saw sterling strengthen after an initial drop as Mark Carney confirmed that interest rates will still be rising at the end of the year despite low inflation. US Retail Sales saw a sharp contraction but did little to weaken the favoured USD. The major news of course was the SNB’s removal of a minimum exchange rate against the Euro, which subsequently saw the Swiss Franc rally over 25% against most majors in a matter of minutes as the safe haven currency returns to its historical strength. The vast selling of Euros saw GBP/EUR rates end the week 4 cents higher at a 7 year high, presenting a fantastic opportunity to secure any Euros needed in the coming months on a Forward Contract.

Will GBP/EUR go even higher this week?

Some more optimistic clients are currently awaiting a Monetary Policy decision from the ECB this Thursday, where there is the possibility that Quantitative Easing may begin in the Euro-zone, something which typically weakens the currency in question. Whilst it is possible that rates could spike further should this be the case, it is by no means a sure thing as the extensive Euro selling in the recent weeks is the market pricing in this expectation as the potential action has been well publicised. The ECB’s recent comments have simply stated that the are ‘preparing’ for QE with no comment on exactly when. Therefore the very real risks are that if the decision is not taken this month and is instead delayed until March’s decision, then we will almost certainly see the Euro fight back its recent losses very quickly. Those that don’t wish to gamble should consider taking advantage of the current peaks before Thursday.

The Week Ahead

10:00am (EUR) – ZEW Survey –German Confidence

9:30am (UK) – Bank of England Minutes / Unemployment Rate – Average earnings
3:00pm (CAD) – Bank of Canada interest rate decision

12:45pm (EUR) !!! – ECB interest rate decision following by press conference
3:00pm (EUR) – Consumer Confidence

9:30am (UK) – Retail Sales
1:30pm (CAD) – Retail Sales / Consumer Price Index