Euro takes further hits following Greek elections

26 January, 2015

Tom Arnold

Last week saw some huge moves on the markets as a result of the European Central Bank introducing a massive Quantitative Easing program to provide liquidity to the ailing European economy. Despite being widely expected and hence priced in, the scale of the program was such, that the Euro crumbled across the board – QE essentially dilutes the holdings of a currency and as such, more Euros available on the markets, makes them cheaper to buy.

The Pound reached levels against the Euro not seen for seven years and the Dollar pushed even further and reached eleven year highs.

In other news the main point from last week was the Bank of England minutes; showing a change in voting from seven MPC members for a hold in interest rates, versus two in favour of a hike, to all nine members in favour of a hold. As such the markets are now starting to price in no hikes before 2016, which is not good for the Pound and has put it under pressure against everything other than the Euro.

Overnight the Euro has taken further hits following the victory in Greece by Alexis Tsipras and his Syriza party in the Greek general election. The anti-Austerity party have promised to re-negotiate the Greek debt and exit the fierce austerity programs the previous administration had entered, and hence has gained massive popularity amongst the Greek people, particularly the 25% of the population who are unemployed. The situation will now bring Greece’s membership of the Euro under the spotlight as an aggressive stance towards the EU and ECB over Greece’s debt is unlikely to make continued inclusion very easy. This is the reason the Euro has weakened further and while some market watchers think the culling of the weaker herd members might actually be beneficial to the Euro, the unprecedented nature of the situation makes the exact results very hard to guess.

Despite a quiet day today there is a reasonable amount of key data due this week – here are the highlights:

US Durable Goods Orders
US Consumer Confidence

Wednesday German Consumer Confidence
US FED Policy Statement and Interest Rate Decision

German Unemployment
European Consumer Confidence

UK Consumer Confidence
German Retail Sales
UK Mortgage Approvals
European CPI Inflation
European Unemployment

With Euro buying rates so very good, but a murky picture ahead, make sure you stay in close contact with your Currency Index account manager to be kept informed of exactly what is happening and how it is likely to affect your upcoming currency purchase. Many of our clients are taking this opportunity to secure their rate while the rates are high, even if they don’t need the currency straight away using a forward contract – ask your account manager for more information.