The euro fell to a 12-year low against the US dollar, seven-year low against the GBP and a three-month low against the Japanese yen. The decline was triggered by the historic action taken by the European Central Bank to embark upon a quantitative easing programme and to install the upper amount that forecasters purposed, promising to do more after the deadline of September 2016, if required. The central bank has triggered a round of rate cuts around the globe. Denmark cut interest rates twice as they moved deeper into negative territory, while the Bank of Canada recognised the negative impact the price of oil has had on its economy and surprised markets with a rate cut. Turkey also cut its interest rates. Speculation is rife that there are more cuts to come, but attention swung directly towards this weekend’s election in Greece where the left-party, Syriza, appeared to be in the lead.
Euro
The ECB announced it will buy a mix of public and private sector assets which amount to €60 billion per month until September 2016. The bazooka of quantitative easing has been unleashed and the euro suffered as a result. The €1.1 trillion that will be thrown at markets starting in March will be extended if necessary as the central bank pledged to do ‘everything possible’ to reach its two per cent inflation target. Germany’s Chancellor Merkel reminded governments that despite the ECB’s action, structural reforms are what will make European economies more competitive in the future and that these governments should not use the programme as an excuse to delay euro reforms.
Sterling
Consumer demand surprised this week, beating out expectations for a decline. Three consecutive months of wage growth over the rate of inflation, as well as the decline in energy costs, could be behind the pick-up in sales. Claimant count data showed a larger-than-expected decline, while the rate of unemployment fell to a six-year low. The good news helped push sterling easily to a seven-year high against the euro, but could not hold off a dollar’s advance, which sent sterling to 18-month lows. Helping to push sterling down against the US dollar was the Bank of England minutes and the release of the public finance figures. Public sector borrowing rose more than forecast, which will make it difficult for the government to reach its 2014/2015 fiscal deficit reduction goals. That is not considered to be a favourable position to be in prior to this May’s election.
US dollar
The US dollar rallied this week despite some weaker figures. US weekly jobless claims fell from the seven-month highs seen last week, but investors shrugged off these figures given they could be influenced by seasonal effects. A NAHB builder sentiment survey slipped slightly, but the weaker figures were easily offset by strong housing starts data.