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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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 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.
Today as expected, both the Bank of England and the European Central Bank kept their key interest rates on hold at 0.50% and 0.25% respectively. The Bank of England also kept its Quantitative Easing Asset Purchase Facility on hold at £375bn.
In the following ECB press conference, ECB President Mario Draghi surprised the markets with his upbeat comments regarding Eurozone inflation and growth. Inflation is expected to climb from February’s 0.8% to 1.0% by the end of the year, 1.3% in 2015 and 1.7% in Q4 of 2016. Growth forecast was revised up to 1.2% in 2014. For 2015, growth is projected to be 1.5% and 1.8% for 2016.
As a result the Euro has made notable gains against the US Dollar and the British Pound. EURUSD appreciated from a daily low of 1.3722, hitting a high of 1.3858, and currently trades at 1.3843 (0.81%). Whilst EURGBP appreciated from 0.8207 (1.2185), to 0.8287 (1.2067), and currently trades at 0.8274 (+0.76%).
Elsewhere, the Australian dollar appreciated sharply today on better than expected economic data. Australian retail sales rose by 1.2% month on month and the trade surplus widened to AUD 1.43bn.
As a result AUDUSD appreciated from 0.8973 to a high of 0.9091 and the Pound depreciated by 2 cents against the Australian Dollar from 1.8624 to a low of 1.8407.
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The Pound has surged a cent higher against the Euro today following today’s decisions from the Bank of England and the European Central Bank. The Bank of England Monetary Policy Committee voted to maintain interest rates at 0.50% and its Quantitative Easing Asset Purchase Programme at £375bn whereas the European Central Bank voted to cut their interest rate by 0.25% from 0.50% to 0.25% resulting in a Sterling interest rate differential advantage of 0.25%.
GBPEUR hit a high of 1.2045 from an earlier low of 1.1890 before falling back to 1.1980. The Euro also fell against the US Dollar with EURUSD falling from a high of 1.3528 to a low of 1.3296 before recovering back above 1.33 and currently trading at 1.3365. The Pound is down against the USD from a high of 1.6089, hitting a low of 1.6010 before recovering slightly and currently trading at 1.6025.
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Today is a day of inflation figures as UK, Euro Zone and US Consumer Price Index data is set to be released. So far today we have seen figures released confirming that UK inflation remains above the Bank of England’s target of 2%, with UK Consumer Price Index figures remaining unchanged at 2.8%. Euro Zone inflation has increased marginally to 1.5%, up from 1.4% in February. Following these releases, the Euro has strengthened across the board as the likelihood of an ECB rate cut has now decreased on the back of the higher Euro Zone inflation figures.
This morning’s inflation figures have had the greatest impact upon the markets thus far today, as despite German Economic Sentiment Survey data falling sharply to 36.3 this month, the Euro has still strengthened against both the Pound and the Dollar. EUR/USD has reached a high of 1.5312 so far this morning, whilst GBP/EUR fell to 1.1699 following the inflation figures release. Attention will now turn to the US this afternoon where inflation figures and housing data are set to be released. Market participants will be keen to see whether the recent poor data coming out of the US continues.
Please find a summary of this week’s economic calendar below:
ECB President Mario Draghi Speech
09:30 UK Consumer Price Index
10:00 Euro Zone Consumer Price Index
10:00 Euro Zone Economic Sentiment Survey
10:00 German Economic Sentiment Survey
13:30 US Consumer Price Index
13:30 US Housing Starts
09:30 UK BoE minutes
09:30 UK Claimant Count Change
09:30 UK Unemployment Rate
09:30 UK Average Earnings
15:00 Canadian BoC Interest Rate Decision
19:00 US Fed’s Beige Book
G20 Finance Minister and Central Bank Governors Meeting
09:30 UK Retail Sales
13:30 US Initial Jobless Claims
15:00 US Philadelphia Fed Manufacturing Survey
G20 Finance Minister and Central Bank Governors Meeting
07:00 German Producer Price Index
13:30 Canadian Consumer Price Index
17:00 US FOMC Member Stein Speech