EUR suffers as the ECB announces QE programme

Yesterday was a relatively quiet day for the UK in terms of fundamental data, with the only release coming in the shape of public sector net borrowing data, which came in worse than expected at 12.5bn against the forecast 9.2bn. Any movements in the market were largely attributed to events in Europe as the pound traded above a 7 year high against the euro, touching 1.3213 interbank (IB) and within a 171 point range against the dollar. This came as a welcome relief from Wednesday’s news of the 9-0 vote against an interest rate rise which had halted advances against the euro and helped put increasing pressure on GBP/USD rates. The advances seen by the pound yesterday fell in line with expectation and helped to ease pressure on the pound given the poor data showing a rise of just shy of £3bn in net borrowing year-on-year. Today’s highlight is retail sales m/m data due at 09:30. Expectations are for a slowing in figures from the previous month's 1.6% to -0.6%. Anywhere in the middle would be good news, however, anything worse would surely see a downward test on GBP/USD.

Yesterday saw arguably the most eagerly anticipated day for the eurozone for some time as ECB president, Mario Draghi, gave the full details of the quantitative easing (QE) programme that now includes the purchase of sovereign (government) bonds. The programme will see the ECB purchase €60bn a month of private and public debt until September 2016 in the hope of stabilising the eurozone and sparking some much needed growth and life into the region. Understandably, the euro lost ground against all of its major counterparts over the course of the session, dropping to a 7 year low against the pound and an 11 year low against the dollar. Given the fact that the size and duration of the programme are more than anyone expected, it will certainly keep downward pressure on the value of the single currency in the short to medium-term. Anyone exposed to the euro on either side of the market should have their eyes glued to their screens over the coming days. Whilst this offers buyers an exceptional opportunity to fill orders, sellers need to be acutely aware of the risk of a further downward movement. Other than this, key manufacturing data from France and Germany takes centre stage today at 08.00 and 08:30 respectively.

The US saw unemployment claims figures released yesterday afternoon which came in higher than the expected 301k at 307k. However, despite a minor wobble in the opening hours of the London session, this did little to effect the dollar against its peers, trading just above the support line published in yesterday’s report against the pound at 1.5025. The currency pair that really caught the headlines, however, was EUR/USD, which as previously mentioned broke a 11 year low, trading in a 241 point range closing the London session at 1.1406 (IB). The dollar seems to continue its rally, performing well against all currencies, seemingly the only thing that would effect this would be a significant change to monetary policy. Nothing much to whet the appetite today, the highlight being flash manufacturing PMI, at 14:45, expected to tick up from last month’s 53.9 to 54.1. Eyes and ears should be on the performance of the dollar against the euro over the coming days and weeks, with reports suggesting a move as low as 1.10 (IB).