Many analysts were expecting a strong response from Mario Draghi (the head of the European Central Bank) after he openly stated he would do ‘whatever it takes’ to secure the future of the Euro late last week. However this was not to be the and the strong Euro movements prior to the ECB interest rate meeting and press conference to follow were soon wiped out by the close yesterday with GBP/EUR back up to the 1.2750 territory and USD/EUR closing at 1.2150. The announcement from Draghi that the ECB would look to come up with ways to help the struggling eurozone ‘over the coming weeks’ was certainly viewed as delaying tactics and somewhat of a disappointment with the currency and stock markets reacting badly as a result. Draghi said the high yields on some eurozone government bonds were unacceptable, adding that the recent bond buying programme the bank have been adopting will resume but would follow a different path. He said the new scheme would involve shorter term bonds, removing the risks undertaken from longer bonds in which the debt has to be guaranteed over a longer period.
As mentioned the result of yesterday’s conference was disappointing for many and I think really highlights the difficult situation the ECB and the eurozone finds itself in. We have been down this road before with the ECB actively seeming to support the Euro but then providing little or no solutions and I fear that this trend is continuing – because of this I would not be surprised to see GBP/EUR head back towards the 4 year high of 1.2850 and EUR/USD to break though the 1.21 level (I think this will meet strong resistance at the 1.20 mark).