As the ECB plan to end the current Quantativie Easing programme, Mario Draghi commented yesterday that the concern is that this could strengthen the Euro to the extent that is has a negative impact on exports from the EU. This Euro market report discusses how QE can affect inflation and how this can affect exchange rates. The table below shows the difference in Euros you could have achieved when buying £200,000.00 during the high and low points of the past month.

Currency Pair% ChangeDifference on £200,000

Members of the European Central Bank give speeches

Yesterday morning Mario Draghi, President of the ECB delivered a clear message to markets, there will be no surprises for the markets as to when the Quantitative Easing Programme ends. For our less regular readers, this is a tool used to try and raise inflation. It has been used since July 2012 with major financial institutions expecting the QE programme scheduled to end in September this year.

Currency Pair% ChangeDifference on £200,000
Euro weakness due to German Economy Fears

Quantitative Easing weakens the currency in the question, so a planned end to the QE programme is going to help to strengthen the Euro gradually. Philip Lane, Governing Council member said the European Central Bank must keep up its guard against a sudden appreciation of the Euro, which could effectively make its exports less competitive and could dampen inflation, effectively bringing the European economy back to square one. Mario Draghi made it explicitly clear that Euro strength is something he is keen to avoid.

In his speech he also alluded to current tensions with the US over a trade war after the US’s proposed plans to put up tariffs on imported metals which would include the EU. Whilst current effects appear to be minimal, as tensions rise, business confidence is likely to drop, ultimately weakening the Euro longer term.

Industrial Production Figures and tomorrow’s Inflation Data

After Mario Draghi’s speech yesterday, disappointing industrial production figures meant the Euro was on the back foot against most of its major counterparts. According to the stats collected, the Eurozone’s industrial outputs contracted by 1% in January. As this was considerably more than the fall anticipated the Euro weakened, however the main concern will be if this is a slip up or whether the Eurozone momentum may be coming to an end.

Clients of FCD will now want to turn their attention to tomorrow’s inflation data. Forecasts have inflation slowing ever so slightly to 1.2% from 1.3% and could present an opportunity to buy Euro’s should this figure show more a slowdown than anticipated, as we saw yesterday with industrial production figures.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.