The Euro to British Pound (EUR/GBP), Euro to US Dollar (EUR/USD) and Euro to Canadian Dollar (EUR/CAD) exchange rates all tanked in the second half of Wednesday’s trading as tensions between Greece and Germany heightened amid Greek austerity negotiations.
Earlier… The Euro to British Pound (EUR/GBP), Euro to US Dollar (EUR/USD), Euro to Canadian Dollar (EUR/CAD) exchange rates were trending lower in Wednesday’s session as the Euro fell to a fresh 12-year low.
Earlier… The Euro to British Pound (EUR/GBP), Euro to US Dollar (EUR/USD) and Euro to Canadian Dollar (EUR/CAD) exchange rates all sank in the first half of Tuesday’s European session as the Eurozone, US and UK pursue diverging interest rate paths.
The Eurozone began a period of quantitative easing (QE) on Monday—an event that investors and economists alike have eagerly anticipated in the hope of defibrillating the flatling Eurozone.
The programme, totalling over 1 trillion Euros, is expected to restore growth; however, the March purchases remained quite small in the overall scheme of things. Individual trades ranged between 15 and 50 million Euros.
Strategist Ciaran O’Hagan commented: ‘The amount bought may be small to start with, but this will be like a pressure cooker. They have just switched on the heat and we will need some time for the pressure to mount.’
Speculation over whether the ECB will be able to reach its 60 billion a month target has heightened in recent weeks and some economists suggest reluctance to sell bonds could see the ECB programme fall short of expectations.
Financial expert Patrick Jacq commented: ‘They know it will not be easy to purchase 60 billion a month including covered bonds and ABS [Asset Backed Securities], so they have to deal very cautiously. The market remains in positive territory but there is no further acceleration, which means that apparently there is no squeeze on any paper.’
US Fed Rate Hike Speculation Sends US Dollar (USD) Exchange Rate Rallying
Meanwhile, the US economy appears to be leading the way in economic recoveries, with the UK a close second. Monday’s American session saw Dallas Federal Reserve President Richard Fisher state that with further tightening in the US labour market, the central bank should begin gradually raising rates.
Additionally, Fisher warned that a delay to hiking interest rates could see the US economy slip into recession.
Fisher stated: ‘The problem with overshooting full employment to any significant degree is that it had always set the stage for a new recession. Every time the Fed has tightened policy after achieving full employment, it has driven the economy into recession.’
The UK also appears to be edging closer to hiking interest rates, with many economists suggesting that increases in borrowing costs could occur after the May general election.
The fallout from such a political overhaul is likely to see confidence decline and a stumble in UK growth. However, when the hubbub calms, it’s likely that the Bank of England could introduce a rate increase.
Economist Samuel Tombs stated: ‘The MPC’s [Monetary Policy Committee] decision to stand pat today… looks set to be repeated over the next few months while inflation hovers near zero. But by the summer it should be clear that the UK’s deflation is neither pernicious nor long-lasting.’
Meanwhile, the Bank of Canada (BOC) surprised markets this year when it implemented a 25 basis point cut to rates—a development catalysed by weak inflationary levels.
The price of oil has tumbled by over 50% in recent months and as crude is Canada’s largest export, the North American economy has suffered substantially.
In addition, Monday saw Canadian Housing Starts drop in February, coming in at only 156.3K instead of the 179.0K forecast.
Economist Avery Shenfeld suggested that there was little cause for concern as Canada’s harsh winter weather played a part in the decline.
Shenfield stated: ‘Still, we see real residential construction as a slight negative in terms of its contribution to real GDP growth in upcoming quarters.’
Euro Exchange Rate Forecast: EUR/GBP, EUR/USD, EUR/CAD
The Euro exchange rate could fluctuate on Wednesday when European Central Bank (ECB) President Mario Draghi takes the stage to make a speech in Frankfurt. Comments from the central banker have previously caused major ripples in the foreign exchange market.
Meanwhile, Thursday’s final German Consumer Price Index and Eurozone Industrial Production figures could also influence the way the Euro trades.
US Advance Retail, Canadian New Housing Price Index and UK Trade Balance figures will also emerge and could influence the USD/EUR, GBP/EUR and CAD/EUR currency pairs.
The Euro to US Dollar (EUR/USD) exchange rate is trading at 1.0748. The Euro to Canadian Dollar (EUR/CAD) exchange rate is reaching 1.3619. The Euro to British Pound (EUR/GBP) exchange rate is trending in the region of 0.7137.