The Euro to US Dollar (EUR/USD) exchange rate edged higher by around 0.17% on Monday morning.
After an extensive quantitative easing programme was priced-in to the Euro, the shared currency recovered some of its losses as traders speculate that German opposition will lead to a watered-down version of bond-buying. The US Dollar, meanwhile, is generally trending higher thanks to widening policy divergence.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1590.
The Euro to US Dollar is forecast to weaken next week and depending on the outcome of the European Central Bank’s January 22 policy meeting the currency pair could fall to a 12-year low.
Swiss Decision Battered Euro Exchange Rate
Surprise action by the Swiss National Bank on Thursday hammered the already weakened Euro lower against the US Dollar as investors ditched it in favour of safer assets elsewhere. The announcement that the SNB had slashed interest rates and dumped its exchange rate cap against the single currency caused shock waves as most economists were taken by complete surprise, panic spread across the financial spectrum as a result.
The decision shocked International Monetary Fund (IMF) Director Christine Lagarde. She said of SNB Chairman Thomas Jordan; ‘I find it a bit surprising that he did not contact me.’
Jordan, who has been heavily criticized over the move, has commented; ‘After giving up the cap and introducing negative rates we must expect that interest rates in Switzerland will remain low for some time. Negative rates will have a strong effect over time.
The move was also caused traders to raise their bets that the European Central Bank will chose to introduce a quantitative easing programme at its policy meeting next week. As a result, the Euro plummeted against all of its most traded peers and weakened to an 11-year low against the US Dollar.
More Euro (EUR) Losses Forecast Next Week
The Euro is forecast to weaken further over the course of next week with those declines expected to occur at the start of the week and continued throughout.
Monday will see the release of the latest Eurozone current account and construction output data and both reports are likely to make for grim reading. Economists are forecasting that the single currency bloc’s current account surplus narrowed sharply from €30.6 billion to €16.3 billion in November. Construction output meanwhile is expected to fall sharply from October’s rise of 1.4% and rise by just 0.98% in November.
On Tuesday the Euro could find some support from German ZEW Sentiment data but that is likely to be widely ignored as economists focus their attention on Thursdays ECB policy meeting. By this stage of the week, speculation as to whether the ECB will introduce a QE programme is likely to heighten.
Wednesday’s bout of data releases is likely to support the US Dollar if housing data comes in positively. Building permits and housing starts are both forecast to have improved in December.
The main event of the week will occur on Thursday when the ECB announces its interest rate decision and holds a press conference.
The market’s attention will be fixed on the announcement as the ECB is widely expected to announce a QE programme and other monetary easing measures. If QE is announced then the Euro will likely tumble even further against the US Dollar and other major peers and perhaps slide to a 12-year low or more.
Also, set to influence the EUR/USD exchange rate next week will be increasing concerns over the outcome of the Greek general election, which is to be held on 25 January. The latest polls have put the left-wing anti-bailout Syriza party in the lead.
Economists are unsure what will happen if they do win but fear over a ‘Grexit’ have eased slightly due to comments made by Syriza leader Alexis Tsipras.
On Sunday the Euro to US Dollar (EUR/USD) exchange rate was trending in the region of 1.1567