QE Increased to ?80bn Per Month but GBP EUR Exchange Rate Forecast Slides

Modified: Friday, 11 March 2016 17:03 BST - Written by Ben Hughes

STORY LINK QE Increased to ?80bn Per Month but GBP EUR Exchange Rate Forecast Slides

EUR Exchange Rates Initially Dived in Response to ECB Policy Outlook

Support for the euro (currency : EUR) plunged at 1245hrs when the European Central Bank (ECB) announced that it would be increasing its controversial Quantitative Easing programme from €60 bn a month to a heady €80 bn per month. The move was not unanticipated by analysts, but their consensus forecast was for a smaller increase, likely €10 billion per month, than the 33.3% jump in asset purchases which materialised.

Today’s decision also saw the ECB cut its headline interest rate – the repo rate – from 0.05% to a fresh record low of 0.0%, essentially giving Eurozone banks free money.

The Pound Sterling euro exchange rate spiked to 1.3056 GBP EUR, which represented its highest level since the first week of last month, following the news.

Tomas Holinka of Moody’s Analytics observed earlier that, ‘while the bank has revealed its policy instruments step by step in the past, now it announced all of them—cutting the interest rates, expanding the QE program and providing long-term liquidity—together. This massive easing package should release as much as €800 billion parked at the ECB’s deposit facility and reserves, increasing inflation closer to the ECB’s target through higher lending and a weaker euro.’

Euro Slump Short-Lived on Draghi Comments

However, the stark improvement for the Pound against the euro proved short-lived and the move higher reversed almost as soon as ECB President Mario Draghi began his press conference at 1330hrs UK time.

Draghi dropped heavy hints that there was no scope for further interest rate cuts in the euroland and he went on to suggest that any further ECB policy loosening would have to be ‘unconventional’ in nature, which many claimed undermined the effectiveness of the new measures. Analysts took this as a hint that there may be no further increase to the ECB’s Quantitative Easing programme – a notion which was firmed up by Draghi’s revelation that his policy board’s decision to increase QE today was not unanimous.


With the UK European Union In / Out referendum still three and a half months away, FX insiders forecast that there may now be further losses ahead for the GBP EUR exchange rate.

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TAGS: Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts