Euro Rates improve again as Draghi announces QE

23 January, 2015

Robin Haynes

The Euro’s drop in price continued yesterday with the European Central Bank announcing its much anticipated Quantitative Easing (QE) program at their January press conference. The Bank’s President, Mario Draghi, announced €60bn of money would be injected every month from March until at least September 2016 – more than the €50bn which was rumoured on Wednesday. That’s a total of €1.1tn of ‘new’ money to be distributed via bond purchases to central banks and, hopefully, into ailing Eurozone economies.

Markets reacted well to the news, but the single currency weakened, giving us the best rates for buying Euros since February 2008. The reason for this is that the printing of money, which is what QE comes down to, effectively dilutes the value of a currency, and as we have seen in the UK and USA since the financial crisis, more currency available means it becomes less valuable, so the price of the currency drops and exchange rates improve.

While yesterday’s news was largely priced in to exchange rates already, the extent of the monetary easing was a surprise, which is why we saw Euro rates improving still further after the shock Swiss National Bank actions last week had already given us a much cheaper single currency.

There will be complications ahead for Eurozone QE, not least because the risks and benefits are spread across all member states’ central banks, so it is unlikely that the road ahead will be as easy as it was for the UK and US economies.

Greek elections this weekend

The January Eurocoaster continues this weekend as the Greek public head to the polls, with anti-austerity party Syriza showing a clear lead over Antonis Samaras’ government. Syriza have promised to renegotiate the terms of Greece’s Eurozone bailout deal – a promise which may lead to Greece defaulting on its debt repayments and ultimately leaving the Eurozone. Whether this would weaken or strengthen the single currency overall can be argued for either case, but one thing looks very likely: this tumultuous month in the history of Europe’s monetary union doesn’t show any sign of calming down just yet.

Those you sending Euros abroad should certainly consider whether it might be worth locking in rates for a future requirement.

With little news elsewhere to report, the Eurozone is certainly dominating foreign exchange markets at the moment, but if you have other currencies to send or receive, the team at Currency Index will be pleased to discuss your requirements and let you know what is happening with any given exchange rate pairing.