Pound climbs again in wake of QE announcement
Another turbulent week last week saw the euro lose yet more ground against its major counterparts, with the pound and dollar reaching 7 and 11 year highs respectively against the single currency. The US currency was the biggest winner from yet more eurozone uncertainty, gaining against sterling as well as the euro.
Scale of ECB programme a surprise
When Mario Draghi finally announced the details of the ECB’s quantitative easing programme on Thursday we saw an immediate reaction from the markets. Although QE was widely expected and had been rumoured for many months, it appears that many market participants were caught on the back foot by the sheer scale of the asset purchasing programme.
Under the terms of the programme, the ECB have committed to buy €60bn of public sector bonds on a monthly basis every month until at least September 2016. This brings the total minimum investment to a figure in the region of €1.1trillion.
The euro’s poor run continued on Friday when Germany posted disappointing manufacturing figures. Coupled with a 1% swing against forecast for UK retail numbers in December, the weekend couldn’t come quickly enough for the single currency after a punishing 48 hours’ trading.
Sunday’s general election in Greece is likely to be the main mover for euro crosses this week. As expected, Alexis Tsipras and his anti-austerity Syriza party have won the election. With nearly all of the votes counted, Syriza looks likely to have won 149 seats – just two short of an absolute majority.
Even though Tsipras has maintained that he doesn’t want to leave the eurozone, his victory is seen as a blow to both the ECB and IMF due to his anti-austerity views. During his victory speech he said Syria’s success marked an end to the “vicious cycle of austerity”.
The rumblings amongst Europe’s other members have already started, with Germany’s ruling CDU party stating that Greece should ‘stick to the austerity programme’ and Belgium’s finance minister saying Greece must ‘respect the rules of monetary union’ (though he added ‘there was room for negotiation’).
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