Euro close to 9 and 6 year low against dollar and sterling respectively

Euro close to 9 and 6 year low against dollar and sterling respectively

The euro breached below $1.19 yesterday to post its lowest mark against the dollar since 2006. Although the single currency clawed back some gains against the pound, it is still flirting with the worst rates in 6 years versus its cross channel neighbour.

The reasons? Expectations that an expanded form of quantitative easing will be introduced in the Eurozone have been heightened recently, as tumbling inflation in the stalling European economy lead most market participants to believe QE is the ECB’s only way out. With the next meeting of the ECB (overseen by the pro-QE Mario Draghi) on the 22nd January, the feeling is that the announcement of an asset purchase programme is coming sooner rather than later.

If it’s now a question of ‘when’ rather than an ‘if’ for QE, is it the right solution?  A recent FT poll of Eurozone economists suggests it is not guaranteed to be successful; most respondents suggested any package put in place by the ECB will not be far reaching enough to significantly improve growth and inflation in the bloc. However, the general consensus was that the ECB would press forward with QE in 2015 so watch this space for further choppy euro trading.

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The ‘Grexit’ back in focus

Mixed in amongst the technical data and analysis of the European economy, Greek politics have once again placed themselves firmly at the head table of Eurozone issues – belying Greece’s status as one of the smallest euro economies.  The possibility of elections as soon as the end of this month could signal the start of a messy break away from the euro for Aegean nation. Such an event would represent uncharted waters and of course a major risk to markets.

Though German chancellor Angela Merkel believes the Eurozone could survive the ‘Grexit’, she was keen to demonstrate that Germany still favours stabilising without losing any of its members. Make no mistake, the Greek elections and subsequent decisions are huge – it will not just be QE that dominates the headlines in coming weeks and exchange rates could be in for a very choppy time. Follow this link to find out more about Stop Loss and Limit orders; tools that can can help make the most of this potential volatility.

Today’s data releases

Today is all about inflation. First up we have Spanish & Italian services PMI, followed by the final figure for European wide services PMI. Following on from the Eurozone, the UK takes a shot with services PMI followed by a credit conditions survey from the Bank of England. Later in the day the inflation theme continues Stateside, with two releases back to back – their final services PMI and then non-manufacturing PMI. Expect a busy day and don’t be surprised if the recent trends continue!

David Worthington

+44 (0)1442 892079

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