Euro exchange rates - Will the Euro recover?

The Euro found some support during yesterday’s trading, with approximately a cent improvement against the Pound at its high. As mentioned in my Pound Sterling update the Euro (EUR) had threatened to improve significantly against the Pound (GBP) and only last week was sitting over 10 cents higher than it was only a couple of months ago. However, this improvement was short lived and GBP/EUR exchange rates are now floating around 1.36 on the exchange, following investor concerns over poor Eurozone inflation figures.

With inflation coming in at -0.1%, it is widely anticipated that the ECB will now have to instigate further rounds of Quantitative Easing (QE) to counter this and that will almost certainly cause EUR weakness. Quite simply if any given economy is supplemented with additional funds, then it will devalue the currency already in place.

It is these fears which have driven Euro exchange rates back down and unless we hear some sort of tangible counter to these fears by ECB president Mario Draghi, the uncertainty it has created is likely to hurt the Euro in the short-term.

Will the ECB counter inflation concerns with further QE?

It’s been a fairly sparse week so far in terms of Eurozone data but tomorrow is likely to bring focus back to the EUR, with the latest ECB interest rate decision and subsequent monetary policy statement. Whilst it’s widely anticipated that that they will hold rates at 0.05%, it’s Mario Draghi’s public address that is likely to grab investors’ attention. If he gives any indication that more QE is on the way expect the EUR to weaken against most of the major currencies.

For more information on how future data releases could affect Euro exchanges please email me here.

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