Specialist at HiFX comments on today’s ECB announcement on Q.E
Associate director of FX advisory services at foreign currency specialists, HiFX, Andy Scott, comments on today’s ECB announcement on Q.E.
“Today’s ECB announcement that they will begin buying €60bn of bonds per month until the end of September 2016 or beyond, pushes the central bank into a complex and untested area of monetary policy in the euro zone. Once unthinkable, with many country’s political leaders calling such a step unconstitutional, quantitative easing will launch in March.
“Whilst the market was fully expecting Q.E. to be announced – following continued low inflation through 2014 and deflation seen in December – the euro weakened against the U.S. dollar and the pound, towards the multi-year lows reached last Thursday after the shock announcement by the SNB.
“Since the ECB is quite far behind the curve in terms of current rates of inflation – also inflation expectations – they could find that it takes a long time to begin to reverse these trends and that is likely to weigh on the euro. It’s important to bear in mind though, that the euro is currently at its lowest level against the dollar in 11 years, having fallen around 18% since last May, making the euro cheap and potentially attracting investment from overseas investors. The near term risks for the euro remain towards the downside but assuming Q.E. produces some positive results as it looks to have in the U.S. and the U.K. and is starting to in Japan, we would expect it to recover in the medium term to more neutral levels.”