Weekly exchange rate news

by Admin on March 11, 2016

GBP

UK reacts to Draghi

Yesterday the pound’s performance was entirely dependent on events elsewhere as the ECB and Mario Draghi took centre stage. For sterling this meant that GBP/EUR traded in a 3 cent range (2.3%) across the day, trading from GBP/EUR 1.3050 – 1.2740 (IB).

The Royal Institution of Chartered Surveyors (Rics) did announce that the UK housing market is expected to slow over the next couple of months. With new legislation set to come into place in April, landlords and second home owners will be forced to pay 3% extra. With a rush to purchase houses before this happens, it is unsurprising that April will mark a slowdown.

Today sees the release of UK trade balance data at 09:30 which is expected to show that the gap between exports and imports has widened. For the time being the strength of the pound and its performance is going to be dictated by the euro and dollar.

EUR

ECB does not disappoint

By now everyone knows that the European Central Bank went above and beyond expectations and in response, the euro soared and European stocks fell. Many investors and economists believed that aggressive easing by the central bank would mean the kiss of death for the euro and now they are scratching their heads and wondering why the more that the ECB lowers interest rates, the stronger the euro gets. Along with the interest rate cut we saw further aggressive stimulus from Mario Draghi which was as follows:

By now everyone knows that the European Central Bank went above and beyond expectations and in response, the euro soared and European stocks fell. Many investors and economists believed that aggressive easing by the central bank would mean the kiss of death for the euro and now they are scratching their heads and wondering why the more that the ECB lowers interest rates, the stronger the euro gets. Along with the interest rate cut we saw further aggressive stimulus from Mario Draghi which was as follows:

1. Main refinancing rate cut to 0% from 0.05%
2. Deposit rate cut to -0.4% from -0.3%
3. QE increased to 80bn euros per month from 60bn
4. Introduces new 4 year TLTROs
5. Expanded asset purchases to include corporate bonds
6. Lowers 2016 and 2017 GDP and inflation forecasts

It was not until the press conference, delivered after the bank slashed rates, that Draghi stated that the markets should not anticipate any further rate cuts. His target is for inflation to increase in 2016 and 2017 by 0.1% and 1.3% respectively. He did express, however, that reaching their target of 2% would be a gradual process.Should the ECB have not acted in such a strong manor and spaced out the move taken yesterday across a number of meetings whilst at the same time giving forward guidance around what was to come, investors suspected that EUR/USD would have crashed. Moving forward, investors have been airing their concerns around the fact that Draghi “has fired the big bazooka” and are worried the central bank has run out of ammunition. It is widely felt that yesterday’s actions truly reflect the depth of the ECB’s concerns about the global economy.

Should the ECB have not acted in such a strong manor and spaced out the move taken yesterday across a number of meetings whilst at the same time giving forward guidance around what was to come, investors suspected that EUR/USD would have crashed. Moving forward, investors have been airing their concerns around the fact that Draghi “has fired the big bazooka” and are worried the central bank has run out of ammunition. It is widely felt that yesterday’s actions truly reflect the depth of the ECB’s concerns about the global economy.

 

Please note all speculative data is opinion based and gathered from some of the market leaders in currency exchange. R&R Ibiza will not be held responsible for any losses incurred as a result of the opinions stated or following the advice given.

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