Last Thursday the European Central Bank (ECB) held interest rates and made an announcement which immediately weakened the single currency. News broke that the bank would conclude its Quantitative Easing programme by the end of the year, reducing the taper down from €30 million to €15million per month and concluding all of its bond purchases. The Euro report below looks at the impact of these comments on Euro rates, with the table showing the range of exchange rates seen by the Euro over the past month.
|Currency Pair||% Change||Difference on £200,000|
There was very clear guidance from the ECB regarding future policy: interest rates will remain at their current level and not increase until the end of 2019. The move was interpreted as negative for the Euro. Euro sellers lost 1 cent almost immediately after the news, making a €200,000 transfer £2000 more expensive within the same day.
In recent weeks, it seemed like the ECB was optimistic about the economy, as data releases and news in general seemed as though it was being spun positively to help the Euro gain momentum. Announcing that rates will not increase for 18 months has lowered expectations. If the ECB does raise rates before end-2019, it’s very likely that the Euro would strengthen. Instead of supporting the Euro, the revised approach seems to be to under promise and over deliver. Barclays predict the next two ECB rates hikes to be mid to late 2019 and in mid-2020.
The news has set the Euro on a different path to its American and UK counterparts – the Fed will raise interest rates 3 or four times this year, whilst the debate in the UK is not if rates will be raised but rather when. To that extent, I expect the Euro to weaken later this year when rates are increased against its major currency counterparts.
There is little European economic data this week however Mario Draghi – President of the ECB – is due to speak on Monday, Tuesday and Wednesday this week. I would be extremely surprised if nothing of note was to come out of these speeches.
Clients with an upcoming Euro requirement should contact their Account Manager as they may want to avoid any more unpleasant surprises and hedge their risk against potential further Euro losses this week.
Brexit is back on the agenda for Eurozone leaders, who may want to keep in mind Ireland’s delicate position and how it can influence the Euro economies in the worst-case scenario.
Helen McIntee, Irish Minister for European affairs, cited research from the World Trade Organization (WTO) where Ireland’s projected growth could be down by 8% should the Brexit scenario of no free-trade agreement be realised.
Portugal, Italy, Ireland, Greece and Spain form the acronym PIIGS. The reason these countries are grouped together is because of their substantial instability demonstrated post-2009. Italy’s economic situation is reminiscent of Greek issues a few years ago but poses a bigger threat to Europe - and the Euro - given that it is more interlinked with the French and Spanish economies.
There will be a Eurogroup meeting on Thursday for two days which is worth keeping an eye on. We could see disharmony in the EU. Macron has proposed economic reforms that put Euro countries’ debts in common – these are unlikely to be agreed if more countries are unsettled. It seems like the Euro is set for testing times in the coming months.
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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