Euro weakens following ECB QE announcement

9 December, 2016

Matthew Boyle

In what was a relatively quiet day for data, yesterday’s main focus and release was the European Central Banks monetary policy statement and press conference in the afternoon. In the morning we did have the ECB deposit rate and interest rate decision, but unsurprisingly both were left unchanged at -0.4% and 0% respectively. As such morning trading across the major currencies remained relatively flat as the market awaited the much anticipated ECB President Mario Draghis announcement. And as always when Draghi talks he didn’t disappoint in the way of moving the market – announcing a reduction in the rate of Q.E purchases to €60B from what was previously €80B to the end of December 2017. Initially the markets jumped on this as a sign of Euro strength and we saw rates move accordingly with the Euro stealing ground against both the Pound and the Dollar. However what quickly came to light during the speech was that the ECB would not rule out an increase in size or duration of the programme if needed. This warning quickly saw a turnaround in market sentiment, and what was perhaps an earlier knee-jerk reaction was reversed seeing the Euro weaken considerably. Consequently by the end of the day’s trading the single currency lost around a cent against both the greenback and the pound.

Today sees the Pound take the front seat in terms of major releases as we see Consumer inflation expectations released by the Bank of England. Elsewhere though we have the Swiss unemployment rate in the morning, so any CHF traders may want to keep in close contact. Certainly a positive reading for the Pound here could see the Euro weaken further, but remember we are fairly close to a level of resistance in rates that was not broken following the potential “Italexit” result so if you have a short-term requirement you may like to consider taking advantage of the increased buying rate now. Equally given that analysts are suggesting the Draghi and the ECB are adopting a simultaneous Hawkish and Dovish approach, and the likely pressure from the USD a poor reading from the UK could see yesterday’s gains quickly lost.

Without doubt over the last few months, we have seen some of the most volatile periods and large swings in the currency market and rates, but take note that these are far from over. And whilst no-one can predict the future, Currency Index can offer a number of ways in which you can order currency to help protect your purchase and potential cost from increasing. Give us a call today if you have any upcoming requirements for some friendly guidance on how to do this, and don’t be caught out in the cold with your transfer.