Gains Forecast for Pound Sterling GBP vs AUD NZD CAD Following Draghi QE Let Down

Published: Thursday, 3 December 2015 14:00 BST - Written by Minesh Chaudhari

STORY LINK Gains Forecast for Pound Sterling GBP vs AUD NZD CAD Following Draghi QE Let Down

ECB Shocks Markets after Cutting Deposit Facility Rate Less-than-Expected

This afternoon’s monetary policy announcement from the European Central Bank (ECB) President Mario Draghi, and his press conference which followed, have had an unexpected effect on global markets.

The ECB’s deposit interest rate for lending to retail banks already stood at below zero before the euroland central bank’s lunchtime decision.

Analysts had been anticipating a cut of up to 0.2%, taking the deposit rate from -0.2% down to -0.4%.

The announcement of a cut to -0.3% therefore came as a mild disappointment to investors and the euro (currency : EUR) strengthened as a consequence.

The ECB’s decision, also announced at 1245hrs GMT, to maintain its headline interest rate at its current level of 0.05% also hurt the single currency, as a fair proportion of analysts had been expecting a cut.

Draghi Fails to Extend QE Purchases, Euro Gains

However, the main source of disappointment was still to come; Mario Draghi announced in his 1330hrs GMT press conference that his Bank’s Quantitative Easing programme, which currently sees bond purchases of €60bn per month, is set to be extended by 6 months to run until March 2017.


Investors had been pricing-in an increase to the monthly allocation to €75bn, so the announcement of an extension was seen as a poor substitute by traders hungry for more ‘easy money’ now.

Ben Brettell of Hargreaves Lansdown explained the markets’ reaction earlier, stating that, ‘this does little to provide an immediate boost to the economy. Markets had been hoping for an acceleration of QE, i.e. an increase to the €60 billion monthly figure. The disappointment in financial markets is palpable this afternoon. The euro has strengthened (which won’t help the euro zone economy) and stock markets have fallen on the announcements.’

GBP to EUR Conversion Rate Dipped into 1.3800s Today

The Pound Sterling euro exchange dipped into the 1.3800s as investors expressed their relief that Draghi and his policymakers had opted for a ‘loosening lite’ stance to their monetary policy in the near-term.

Meanwhile, the Commodity Dollars moved in step with global stock markets and weakened; analysts now forecast that the Pound Sterling (currency : GBP) may pick up near-term gains against the Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and Canadian Dollar (currency : CAD) in the short term.

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TAGS: Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts