Homepage » News » EUR/USD » EUR USD Plummets as ECB Policymaker Suggests QE Will Continue For another Couple of Years

EUR USD Plummets as ECB Policymaker Suggests QE Will Continue For another Couple of Years

The Euro US Dollar (EUR USD) exchange rate slumped on Thursday morning following suggestions that the European Central Bank (ECB) may leave its stimulus programme in place for another couple of years.

Euro (EUR) Slides as ECB Policymaker Warns of Additional QE

The Euro stumbled in today’s trading session following dovish comments made by an ECB policymaker.

Ilmārs Rimšēvičs, governor of the Central Bank of Latvia and member of the ECB governing council said today that the central bank’s quantitative easing programme could remain in place for at least another two years as the ECB tackles low inflation.

Given that the ECB has previously stated that the removal of the bank’s stimulus would be a perquisite for raising interest rates the comments essentially suggest that interest rates are likely to remain at 0% well into 2019

However there were also conflicting reports today that suggest that the ECB will begin discussing the possibility of wind down of its bond buying programme when the bank meets in September, with many economists predicting that the bank could agree to start the process once it’s current stimulus package ends in December.

US Dollar Weakened By Yellen Testimony

Meanwhile the US Dollar suffered yesterday following Federal Reserve Chair, Janet Yellen’s testimony in front of Congress as she discussed the state of the US economy.

After voting to raise interest rates in June, many investors had hoped that yesterday’s prepared statement would have conveyed a more hawkish tone towards future monetary policy.

However markets were left disappointed as Yellen indicated that while interest rates would continue to rise it would be a gradual process, pointing to the weak inflation as a key factor in the decision.

Michael Hewson, Chief Market Analyst at CMC Markets said;

‘The US dollar slumped after Fed chief Janet Yellen caught investors by surprise by leaning back from the prospect of multiple rate hikes in the coming months.’

‘Market reaction was also reinforced by her comments that inflation was running below target and that rates wouldn’t need to rise much further to get back to neutral… and certainly takes a September rate rise off the table.’

However the Fed Chair did confirm that the bank was still seeking to normalise its balance sheet with the unwinding of a $4.5 trillion bond portfolio that the Fed has accumulated since the Financial Crisis.

EUR USD Forecast: Eurozone Trade Balance Ahead

Looking ahead the EUR USD exchange rate may rally again tomorrow with the release of the Eurozone’s latest trade balance, with analysts forecasting that the bloc’s trade surplus will have risen in May part in thanks to another strong report from Germany.

Meanwhile the US Dollar may stumble of Friday as economists predict that the US inflation rate will have slipped from 1.9% to 1.7% last month.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.1414 and the USD EUR exchange rate was trending around 0.8758.