Currency Matters: EURO
The Euro has fallen across the board over the weekend as Italians voted “No” in a referendum rejecting Prime Minister Renzi’s constitutional reforms, prompting his resignation. The anti EU and populist 5 Star Movement campaigned hard for a “No” vote and the outcome will be seen as an indication of growing support of Italy’s populist anti EU Movement and is seen as confirmation of growing anti-establishment/anti EU sentiment across Europe. However, it is worth noting that in the short term a grand coalition will likely be formed keeping 5 Star away from power and most Italians do continue to support Euro membership. Moreover, in Austria the electorate voted for Pro-European Alexander Van der Bellen against the anti EU and far right candidate Norbert Hofer.
The markets reacted clearly, pushing the Euro sharply lower through a 12 month low to 1.0507 against the Dollar. Against the Pound the Euro fell to its lowest level since the BREXIT Referendum result to 0.8305 (GBP/EUR 1.2041).
In the UK, today marks the start of the key landmark legal hearing by the Supreme Court on whether Parliament’s consent is required before the Government can trigger Article 50 – the formal process of leaving the EU. This follows the election of pro-EU Liberal Democrat Sarah Olney in the Richmond Park by-election following Zac Goldsmith’s, a prominent “Leave” supporter, decision to quit the Conservative party and run again as an independent following the Conservative Government’s decision to expand Heathrow.
The European Central Bank (ECB) meeting on Thursday will be seen as the key event this week. Policymakers are set to decide on the future of the EUR 80b a month asset purchase program, which is scheduled to end in March. The result of the Italian referendum will heighten the need for the ECB to extend the program. Meanwhile, depending on market reactions to the referendum, the ECB could also tilt the program towards Italian government bonds to stabilize any volatility. Markets are currently expecting a six month extension to the program. The Euro would be vulnerable to deeper falls if the ECB announce something greater than that.
The Euro could continue to fall and the next level of support against the US Dollar is 1.0461 and 0.8116 (GBP/EUR 1.23) against the Pound.
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Yesterday the Euro surged across the board after the European Central Bank (ECB) disappointed market expectations of significant monetary easing, keeping the main interest rate at 0.05% and only tweaking the deposit rate from -0.20% to -0.30%. The ECB also extended their €60 billion a year Quantitative Easing asset purchase program for an additional six months, to March 2017. Given the struggling Eurozone economy, the markets had expected a substantial increase to the asset purchase program or significant reductions to other ECB interest rates. The lack of any substantial moves by the ECB surprised the markets and the Euro responded with sharp gains against the US Dollar, Pound and other major currencies. EURUSD appreciated from 1.0506 to 1.0981; EURGBP appreciated from 0.7023 to 0.7251 (GBPEUR 1.4239 to 1.3791). The Pound followed the Euro higher against the US Dollar although not to the same extent with GBPUSD moving from a low of 1.4902 to 1.5158.
The Euro rebounded strongly yesterday 02nd June amid optimism that Greece is moving closer to reaching an agreement with its international creditors and reports that the European Central Bank increased the level of emergency cash available to Greek banks by €500m. Moreover, inflation data released from the Eurozone suggested that deflation risks have subsided as the Consumer Price Index (Core YoY) beat market expectations at 0.90%.
Today 03rd June, European Commission President Jean-Claude Junker is set to meet with Greek Prime Minister Alexis Tsipras and the European Central Bank will also meet to make its interest rate decision. It is expected the European Central Bank will hold its key interest rate at the record low of 0.50% whilst possibly accelerate their EUR60bn per month asset purchase program. The outcomes of both meetings will be watched closely by market participants.
Elsewhere we have a raft of data due out of the US this afternoon including mortgage approvals, employment data, trade balance and Purchasing Managers Index data. This evening the Federal Reserve will also release its Beige Book economic report.
As a result the Euro has spiked higher against the US Dollar and the Pound with EUR/USD hitting a high of 1.1193 and EUR/GBP pushing through 0.73p (GBP/EUR below 1.37). Elsewhere, GBP/USD has traded between 1.5375 and 1.5215.
The European Central Bank (ECB) will start its new government bond-buying programme on 9th March hoping to boost growth and lift inflation in the ailing Eurozone. The ECB plans to spend €60bn a month on buying sovereign bonds and some private sector assets with the purchases likely to last until at least September 2016.
In the UK the Bank of England (BoE) kept rates unchanged, meaning they have now been at their record low of 0.50% for six years. Whist none of the leading economists polled by Reuters expect the Bank of England Monetary Policy Committee to raise rates before the UK general election in May, there are some expectations that the BoE may increase rates sooner than currently forecast by the markets meaning that the ECB and BoE could have diverging monetary policies, thus supporting the Pound further against the Euro.
The Euro (EUR) fell to its lowest level against the US Dollar (USD) in over 11 years hitting a low so far of 1.1008 on the interbank market. The Euro also fell against the Pound (GBP) with EUR/GBP hitting a low of 0.7224 (GBP/EUR high 1.3842).
The Euro has weakened across the board as European Central Bank (ECB) President Mario Draghi launched an expanded asset purchase program, committing to €60bn of private and public debt asset purchases every month from March 2015 to September 2016. The policy was larger than market expectations which predicted asset purchase totalling €50bn per month.
Following the announcement the Euro plunged to its lowest level in over 11 years against the US Dollar with EUR/USD trading as low as 1.1402. The Euro also fell against the Pound with EUR/GBP hitting a low of 0.7566 (GBP/EUR 1.3217). The Euro continues to trade around parity against the Swiss Franc trading today between 0.9846-1.0033.
The Swiss National Bank (SNB) shocked financial markets on Thursday by scrapping a 3 year old cap on the Franc (CHF), sending the Franc soaring against the Euro (EUR). At one stage the Franc had appreciated nearly 30% in value against the Euro, with EUR/CHF falling from 1.2011 to 0.8597 before recovering nearly 15% back to 1.01. The Franc also dropped dramatically against the US Dollar (USD) with USD/CHF falling from 1.0220 to 0.7407 before recovering to 0.87.
As the SNB removed the upper limit on EUR/CHF, the SNB sought to discourage new flows into the Franc by cutting its sight deposit rate from -0.25% to -0.75% making it more expensive for banks and investors to hold the Franc.
The dramatic change in policy from the SNB comes a week before the European Central Bank (ECB) is expected to unveil a bond buying programme to counter deflationary pressures, feeding speculation that the ECB Quantitative Easing (QE) scheme could be so big that the SNB would have struggled to defend the EUR/CHF cap. The Euro was forced lower across the board with EUR/USD falling to 1.1567 before recovering back to 1.16 and EUR/GBP falling to 0.7623 (GBP/EUR 1.3118).
A full copy of the SNB press release can be found at: http://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf
The US Dollar remains supported as US employment data beat expectations with the US employment rate falling from 5.8% to 5.6% the lowest level since June 2008. The Federal Reserve has held interest rates near zero since 2008 but expectations are increasing that the Federal Reserve will start to increase interest rates this year, possibly in the second quarter.
This coupled with the expectation that the European Central Bank will ease monetary policy has forced EUR/USD to its lowest levels since December 2005, hitting a low of 1763.
In the UK the Pound was supported earlier this morning by better than expected manufacturing and trade balance data pushing GBP/EUR to a high of 1.2844 and GBP/USD up to 1.5174 before receding to 1.2820 and 1.5096.
The Euro has depreciated sharply today following the European Central Bank’s (ECB) decision to cut the benchmark interest rate by another 0.10% to a new record low of 0.05%. The deposit rate was also lowered further into negative territory to -0.20%. ECB President Mario Draghi also announced the ECB will launch an asset purchase programme; buying debts from banks in a move that is hoped will add liquidity into the financial system and revive lending.
The Euro fell more than 1% against both the US Dollar and British Pound. Falling back below 1.30 against the US Dollar, hitting a low so far of 1.2969 and to a low of 0.7905 (1.2650) against the Pound. Further action including more aggressive stimulus measures such as Quantitative Easing from the ECB is still possible in the future.
In an effort to encourage lending, stimulate the Eurozone economy and avoid deflation the European Central Bank (ECB) today cut its main benchmark rate from 0.25% to 0.15%. More significantly the ECB cut its deposit rate from 0.00% to minus 0.10% meaning that commericial banks will have to pay the ECB to lodge their money with the central bank in a bid to incentivise banks to lend to businesses rather than hoard cash at the ECB, therefore stimulating economic growth. The ECB also exteneded its programme of long term loans offerd to banks who lend to businesses. ECB President Mario Draghi indicated that further measures could be introduced in the future.
Following the ECB announcement and the following press conference the Euro fell from a high of 1.3643 to a low of 1.3504 before recovering to just below 1.36 by 14:00 GMT. Against the Pound the Euro fell from 0.8139 (1.2286) to a low of 0.8065 (1.2399) before appreciating back towards 0.81p by 14:00 GMT.
Elsewehere, as expected the Bank of England maintained its Bank Rate at 0.50% and the size of its Assett Purchase Programme at £375bn. We now await the minutes of that meeting due to be released 08:30 GMT on Wednesday 18th June to gain an insight into if the Bank of England is any nearer to raising UK internest rates. The Pound continues to trade between 1.67 and 1.68 against the US Dollar.
The Euro is trading weaker against most currencies this morning as market participants anticipate today’s European Central Bank (ECB) interest rate decision at 1145 (GMT) and the post-meeting press conference by ECB President Mario Draghi. The general consensus indicates that the ECB will not change interest rates at its policy meeting today however there has been building speculation that the ECB may ease monetary policy and this has the support of some policymakers and IMF Managing Director Christine Lagarde.
This morning EURUSD traded at 1.3767 and EURGBP traded at 0.8280 (1.2077). Please do not hesitate to contact the dealing desk on +44 (0) 1695 581 669 or firstname.lastname@example.org for a live quote or for further market information.