Euro falls against US Dollar as QE bets increase

Modified: Thursday, 15 January 2015 13:05 BST - Written by Toni Johnson

STORY LINK Euro falls against US Dollar as QE bets increase

The Euro fell sharply against the US Dollar and other major peers after the Swiss National Bank stunned the currency markets by announcing that it had slashed interest rates and ditched its Euro cap as it foresees the European Central Bank introducing a quantitative easing programme at next week’s policy meeting.

After the surprise announcement by the Swiss, the Euro plummeted to its lowest level in 10-years against the US Dollar. A balance of trade report managed to stabilise the currency pair but it remains near its weakest level since 2005.

‘While the Swiss Franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation. Recently divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The Euro has depreciated considerably against the US Dollar and in turn has caused the Swiss Franc to weaken against the US Dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss Franc against the Euro is no longer justified,’ said the Swiss National Bank in its statement.

Further losses were restrained however as data released earlier in the session offered some support to the single currency. A report released by the German statistical office showed that the Eurozone’s largest economy expanded by 1.5% in 2014, the nation’s best annual performance in three years. The economy expanded despite it nearly sliding into recession territory in the third quarter of the year.

As the session progresses the Euro is forecast to remain weaker against the US Dollar and other major peers. The US Dollar meanwhile is expected to shrug off yesterday’s disappointing retail sales report and move higher yet again, as economists are expecting the latest US data will show that jobless claims data and producer price inflation reports improved in December.

The decision by the Swiss National Bank meanwhile is expected to keep the single currency under pressure for the remainder of the week as the move heightens expectations that the ECB will introduce a full-scale quantitative easing programme at next week’s policy meeting. The currency is also under pressure from concerns over the Greek elections and worries that political uncertainty will return to Italy following the resignation of the country’s President.

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