Euro falls to multi year lows after ECB action

The European Central Banks decisive action to combat deflation in the eurozone with a heavy dose of quantitative easing has left the euro looking rather sick. Recently trading at 1.116 against the dollar, an eleven year low. No wonder the Swiss Central Bank ditched the currency ceiling against the euro last week as it would have been extremely difficult and expensive to combat the onslaught of euro selling. The currency was down nearly 2% yesterday against the dollar and is down another 1.8% today.

ECB President Mario Draghi confirmed that that the bank would start buying 60 billion euros a month of bonds from March and finish in September 2016 or until “a sustained adjustment in the path of inflation” was achieved in line with the 2% target. The markets have responded well to the news as the total sum which is in excess of €1 trillion was much higher than anticipated given the reservations of the German financial authorities as well as political pressure. Draghi has met German demands that national central banks will hold most of the purchased assets on their balance sheets to share risks.

The move by the ECB signals that it is pretty serious in tackling the sluggish growth of the eurozone after being slow to the quantitative easing party compared with the Federal Reserve and Bank of England. Whether the programme will be enough to over come the structural issues impacting the eurozone will be debated at length but at least Draghi has managed to build sufficient firepower to at least give the QE a fighting chance. The original  €500-600 billion euro would have been unlikely to shift inflationary pressures significantly in the face of weak energy prices and slow consumer demand as well as problem exporters like Russia.

Plenty for currency traders to get their teeth into at the moment with all the euro action this week and Swiss franc last week.

Contrarian Investor UK

IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade