Pound Euro NEWSFLASH : Pound Sterling Volatility Forecast After ECB Quantitative Easing

January 22, 2015 - Written by John Cameron

STORY LINK Pound Euro NEWSFLASH : Pound Sterling Volatility Forecast After ECB Quantitative Easing

European Central Bank (ECB) Chief Mario Draghi surprised few commentators by announcing plans for a large scale sovereign purchase programme a short time ago. The consensus opinion amongst analysts had been that the euroland’s reserve bank would be committing €50bn per month to the scheme, so the two elements of Draghi’s announcement which caught investors on the back foot was the precise scale and longevity of the scheme. The ECB will be committing a mammoth €60bn per calendar month, starting from March and ending in September 2016. The total amount of the debt purchases will therefore total €1.14 trillion by the time it ends.

Larger Than Anticipated QE Scheme

Predictably, the announcement of a somewhat more meaningful bout of Quantitative Easing than had been anticipated heaped pressure on the euro (currency:EUR), sending the Pound Sterling euro exchange rate up to close to the 1.3200 GBP EUR threshold during the early stages of the North American trading session. However, analysts forecast that the announcement from one of the world’s premier central banks will have an effect on the relative performance of various major global currencies.

Our leading analysts make his predictions for three of these below –

Steady Performance Forecast for Pound Sterling Exchange Rate

The POUND STERLING (currency:GBP) has generally benefitted from the immediate fall-out of the ECB’s policy announcement this afternoon. Investors expect that, with the euroland’s central bank flooding the market with euros, the value of the single currency will drop because of the laws of supply and demand. With a wide-scale move out of euro-denominated assets forecast, the Pound could record strong gains thanks to the UK’s status as a low-yielding and stable currency zone on the doorstep of the euro area. The outlook for Sterling is NEUTRAL TO POSITIVE.

NZ Dollar Exchange Rate Forecast: NZD Could Lose Ground

The Pound climbed against the NEW ZEALAND DOLLAR (currency:NZD) during the immediate aftermath of the ECB’s announcement.

By rights though, the high-yielding Kiwi should benefit from the ECB’s easy money policy. However, the ECB’s action is part of a bigger picture – with global oil prices halving during the past 9 months and with the Bank of Canada unexpectedly cutting its interest rate yesterday, the impression is forming that New Zealand’s relative yield advantage may be eroded over coming months.

The outlook for the New Zealand Dollar exchange rate is therefore NEUTRAL TO NEGATIVE.

US Dollar Forecast: USD Predicted to Strengthen

Meanwhile, the US DOLLAR (currency:USD) may be a winner from the ECB’s announcement.

The euro US Dollar exchange rate plunged to fresh lows after Draghi’s words this afternoon and the Buck is expected to record further gains against the single currency into the medium term.

EUR USD is the world’s number one currency pair, so the Greenback is forecast to perform on a POSITIVE footing against the other sixteen most actively traded global currencies thanks to arbitrage funding.

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