GBP/EUR at 3 year high
Yesterday offered a brief respite in the march of the US Dollar as weaker than expected US retail sales were announced. Lower energy prices failed to feed through into increases in expenditure elsewhere, and indeed lower gas prices failed to spur any further growth in auto sales. GBP/USD starts today at 1.52+.
Most significantly we saw the Euro fall to 1.2945 against Sterling, although it has now retraced to just above 1.2900. These levels were last seen in 2012, and have not been seen consistently since the early days of the financial crisis.
The European Court of Justice stated that the ECB’s OMT program, announced in 2012 but never actioned, was compatible with EU law. The fear was/is that the ECB might violate the European treaties if it were to accept the risk of default of individual member states that could then be distributed throughout the Eurosystem. The concept that the the ECB would effectively pay the bill of any EU member state was critical in keeping the region afloat since it was announced in 2012. Although, on the face of things, this may appear positive for the Euro. The decision has effectively cleared the final hurdle to Quantitative Easing in the EU. It has been a couple of years since we have talked about the EU QE programmes, but effectively they plan to increase the amount of money in the system to spur growth. Of course any increase in supply/availability of a currency also reduces its price. In anticipation of this we have therefore seen a shift in the value of the Euro.
Elsewhere, Australia’s jobs data were encouraging for the Australian Dollar, with the labour market much stronger than expected at the end of last year. This has help the Australian Dollar claw back some of its end-of-2014 losses, with GBP/AUD now hovering around 1.8450.