It’s been an interesting week for the euro – one of the most volatile we have seen for a while, with a number of different factors pulling the currency one way and then the other over the last four days.
After an aggressively negative trend over the last few months, the euro actually took an uptick at the start of the week. There has been a lot of speculation regarding when and by how much the European Central Bank (ECB) will increase monetary stimulus, a decision that would weigh heavy on the euro. On Tuesday afternoon, rumours were dampened, by word from Reuters that central bankers were unhappy with ECB President Mario Draghi’s leadership style, with particular reference to how he has kept aides in the dark regarding policy decisions. Many reacted to this with the view that it would make it more difficult for Draghi to make any bold decisions in the short-term, and hence reduce the likelihood of any significant ramping-up of stimulus measures.
After Tuesday’s strength, markets were caught wrong-footed yesterday by comments made by Draghi following the bank’s decision to hold interest rates at 0.05%. There was a unanimous vote among the central bankers that, if needed, additional measures could be taken to stimulate growth, most likely in the form of asset-back purchases. Draghi suggested we could see their ECB balance sheet back at levels last seen in March 2012, which would suggest a purchasing program of €1 trillion would be adopted – a move that could pull the rug further from underneath the euro. Immediately after the comments we saw the single currency weaken, hitting over two-year lows against the dollar. Expect a quieter day for the single currency as we arrive on the cusp of the weekend. The only release to keep an eye out for today is French monthly industrial production data, out this morning.