- EUR USD Plummets on QE Extension – ECB extends stimulus to December 2017.
- German Trade Drops – Euro Pressured as figures worse than expected.
- US Dollar Up ahead of Fed Rate Decision – Fed almost guaranteed to raise rates in December.
The Euro US Dollar (EUR USD) exchange rate fell by nearly two cents yesterday as markets reacted poorly to the European Central Banks (ECB) decision to extend its quantitative easing programme.
Euro US Dollar (EUR USD) Tumbles as QE More Extensive than Expected
The Euro (EUR) initially rose as ECB President Mario Draghi announced that the bank would be lowering its monthly asset purchases from €80bn to €60bn a month, but plummeted shortly afterwards as he said that the bank would be extending its stimulus package until December 2017 in order to help ensure growth in the Eurozone, explaining;
‘There are indications of a somewhat stronger global recovery. However, economic growth in the Euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors.’
The nine month extension shocked most investors as they had predicted that the ECB would only extend it stimulus by around six months up to September. Further weighing on the single currency was Draghi’s comments that the central bank’s monetary easing was ‘to an extent, open-ended’, indicating that QE could continue indefinitely.
Draghi also indicated that the uncertainty caused by ‘Brexit’ and Donald Trump’s victory in the US elections had played a part in the ECB’s decision to leave its stimulus programme open ended, saying;
‘It is difficult to judge the effect of these big events, not only the election of Mr Trump, but Brexit, the defeat of the Italian referendum…have effects that by their very nature are going to develop their full dimensions in the medium to long term … these consequences are very difficult to assess now.’
Euro Pressured by Decline in German Trade Surplus
Euro exchange rates was further pressured this morning as Germany’s Trade Balance fell to a nine-month low in October. Data showed that Germany’s trade surplus narrowed from €24.4bn to €19.3bn, sliding past a forecasts of €22.0bn.
This was partly caused by disappointing figures for German exports as the rise from -1.0% to 0.5% in October fell short of an expected rise to 0.9%.
The decline is likely to further stoke doubts in the Eurozone’s largest economy as a recent string of poor data appears to indicate a slowdown in Germany.
EUR USD Exchange Rate Forecast: Fed Rate Decision Next Week
The EUR USD exchange rate may slide closer to parity next week as the Federal Reserve meets for its latest rate decision, with the majority of traders expecting policymakers to vote for a rate rise this month.
With the market odds that the Fed will vote to raise interest rates in December near 95%,analysts have started speculating about further rate hikes in 2017. Bullish investors are beginning to predict that 2017 will see multiple rate rises as Trump’s stimulus policies are forecast to provide a catalyst for adjustments early next year.
Meanwhile the Euro may mount a slight recovery on Tuesday as the latest Eurozone ZEW Survey is released, with economic sentiment expected to rise from 15.8 to 16.7 in December.
Current Interbank Exchange Rates
At the time of writing, the EUR/USD exchange rate was trending around 1.06 and the USD/EUR exchange rate was trending around 0.94.