Euro Rises On ECB Sentiment

26 January, 2018

Simon Eastman

Yesterday, following a period of sterling gains, we saw the pound remain rangebound ahead of the European Central Banks rates setting meeting a lunchtime.

The event came and went with little surprise, with interest rates and QE bond buying program remaining unchanged, as widely expected. What was a surprise, was the laid back approach presented by “Super” Mario Draghi, the ECB president. Having mentioned the bank would do all that was necessary to keep inflation rates rising towards the target, indicating the bond-buying would continue as long as required, with some analysts eyeing as long as September before it came to an end. This is a contrast to previous expectations where we thought it may finish at the end of 2017 and we could be on for an interest rate hike this year.

Despite Mario suggesting the euros increasing value must be monitored and acted on accordingly if it starts to adversely affect inflation, markets seemed to rally around the single currency as it made significant gains against both the pound and US dollar. Its felts, Draghi’s laid-back tone in the press conference was the reasoning behind the rally as with the recent rise, had he wanted to talk it down he could have, as we have seen in previous meetings. With this, markets took it the ECB are not overly worried and the euros rally continues. One market analyst was quoted as saying “Draghi is going to have to do more than this to jawbone the Euro lower,” with another analyst, Jasper Lawler of London Capital Group was quoted as saying “Draghi is not overtly talking the Euro down – so it’s going up, for now”.

The euro took nearly a cent off sterling and one and a half off the ailing US dollar which has been feeling the brunt of investor sentiment lately. EUR/USD reached its highest levels since December 2015 yesterday, in stark comparison to 6 months ago where we were talking potential parity. The pound even managed to ride the euros coattails in afternoons trade, making gains well up above 1.43 before falling right back as the European trading session came to a close.

For any offshore workers being paid in USD, with homes in the EU, a conversation is well worth it now, in case the pairing continues to go against you. A forward contract to cover the next 12 months might well be a big money saver for you.

Today could well be another busy day as the UK sees the release of Q4 GDP at 9.30am with the US GDP reading out at 1.30pm. In between these releases we have speeches from ECB member Coeure and Fed member Bullard. Finally, Canadian inflation figures also at 1.30pm conclude the weeks key releases. Volatility a foot, with market-moving data and potential profit taking as the week closes could mean for an interesting day. Contact one of the CI team today to discuss your requirements and avoid getting caught out.