Mario Kicks Euro Into Touch

8 February, 2013

Simon Eastman

The pound had a mixed day on Thursday starting off weak across the board as per usual recently, until the incoming Bank of England governor Mark Carney was questioned by the treasury select committee. He was there to answer questions about his planned leadership along with having to justify his near £800,000 pay packet which includes a £250,000 housing allowance. He managed to shrug off the excessive claim as the norm for migrating executives but more importantly for the pound, he hinted that he wouldn’t be bringing in any wild changes to policy when he takes over in June, but would take a more subtle approach, basically leaving his options open. Traders and investors took this as positive and subsequently the pound spiked against most major currencies. As the novelty wore off, the pound proceeded to wane, correcting back again, as we’ve seen often recently after any positivity in the UK market.

BoE and ECB interest rate and asset purchase decisions were an unsurprising “no change” so nothing for the markets to move off there. That was until the ECB press conference at 1.30pm when Draghi stuck the boot in.

Draghi, the ECB chief, announced he was “unhappy” and finds “the euro uncomfortably strong”. These few words pretty much instantly knocked a cent off the value of the euro against the pound and US dollar, with the slide continuing as the press conference went on. He was careful to say that exchange rates were not a target for policy makers but that it was important with regards to growth and stability. In other words, if the euro is too strong it could affect the growth of the Eurozone as exports costs increase and could cause a risk of low inflation.

Last year Mario said he would do “whatever it takes” to save the euro which was consistently weak as the Greek problems rumbled on. Now he seems to have altered his stance by (not so) subtly talking it down. A fairly common practice that we have seen from our very own governor Mervyn King in the past but the question is will investors take notice longer term or will the gains made reverse again?

Anyone looking to buy euros in the next few weeks could be wise to look at taking advantage now to avoid any disappointment. Forward buying now, 2 cents better than yesterday morning, is a healthy gain and takes away the risk of these volatile markets. Talk to a member of the team today to discuss your options further.