Friday, 6 March 2015

Pound/Euro breaks through €1.39 - will it last?

Friday 6th March 2015
In the last few days the GBP/EUR exchange rate has climbed further, today briefly going through the €1.39 level before dropping back away. As we’ll see in a moment there are 2 reasons for the gains; weakness in the Euro caused by the European Central Bank (ECB) Quantitative Easing programme, and better than expected US Jobs data driving investment from the Euro, and into the US Dollar. Here’s how the GBP/EUR rate has moved this week: 


ECB Quantitative Easing 


This week the European Central Bank (ECB) confirmed it will start its €1.1 trillion Quantitative Easing programme, following the UK and USA that did the same a number of years ago. The aim is to spur an economic recovery by printing money and buying government backed assets. They have done this despite raising their growth forecasts. They stated yesterday that they would continue QE even if the economy showed signs of recovery. 

This weakened the Euro further, pushing the GBP/EUR rate above €1.38 in trading on Thursday. Effectively the ECB’s president Mario Draghi has got what he wanted – a much weaker Euro which makes EU goods and services cheaper. The Euro is now at a near 8 year low against the Pound, and a 12 year low against the US Dollar. 

However if QE has the desired effect, which it has seemed to do in Britain and America, it could start lending some support back to the single currency. 

US jobs data causes GBP/USD to drop, and GBP/EUR to rise 


Figures today showed that the US economy added 295,000 jobs in February, which is much higher than had been expected. It’s also the 12th month in a row the economy added more than 200,000 jobs, the longest such run since 1994. 

The stronger-than-expected jobs figure strengthened the US Dollar and caused GBP/EUR rates to drop by almost 2 cents:

 

The flow of investment into the Dollar also hurt the Euro, which weakened further and briefly pushed GBP/EUR rates above €1.39. 

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