Euro Dollar Exchange Rate Plummets to New 11-Year Low

January 22, 2015 - Written by Frank Davies

STORY LINK Euro Dollar Exchange Rate Plummets to New 11-Year Low

The Euro weakened to a new 11-year low against the US Dollar on Thursday after the European Central Bank announced that it will launch a larger than expected quantitative easing programme which will total €1 trillion in an attempt to tackle stagnating inflation and stimulate growth across the 19-member Eurozone.

ECB President Mario Draghi said at a press conference that the ECB would buy a total of €60 billion a month in assets such as government bonds, private-sector bonds and debt securities issued by European institutions.

‘Bond purchases might continue beyond September 2016, and until there are clear signs that the annual rate of inflation is rising toward the central bank’s target. The programme is intended to be carried out until the end of September 2016, and until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term,’ Mr Draghi said.

The ECB also announced that it had left interest rates unchanged at 0.05% but lowered the interest rate it charges on its four-year loans to banks by 0.10 percentage point. The decision to introduce a QE programme is expected to be challenged by the Germans as they see the introduction of such a programme may encourage free spending Eurozone members such as Greece to slacken their austerity plans.

The markets are hoping that the new hard-hitting measures will be enough to support the Eurozone’s €13 trillion economy, which has struggled to recover from the global financial crisis known as the Great Recession.

Also weighing on the single currency are growing concerns over Sunday’s Greek general election in which the left wing anti austerity Syriza party is expected to win. Recent polls show that Syriza has a lead over Prime Minister Antonis Samara’s New Democracy Party.

‘Syriza’s policies will lead the country to a euro exit and to new bailout deals,’ warned Samaras in a speech made earlier in the week.

The US Dollar meanwhile found more support from domestic data which showed that the number of Americans filing for new unemployment benefits fell from a 7-month high last week, adding to signs that the US labour market remains strong as the wider economy improves.

According to the Washington based Labour Department, initial claims for benefits fell by 10,000 to a seasonally adjusted 307,000 in the week ending January 17th.

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