The Euro (EUR) exchange rate went back onto the retreat against the Pound Sterling (EUR/GBP) and US Dollar (EUR/USD) on Friday, more losses are forecast.
The Euro strengthened strongly in the previous session after European Central Bank (ECB) President Mario Draghi said that the bank’s policy makers would not introduce a sovereign quantitative easing programme until next year. The Euro increased due to Draghi not being as dovish as economists had hoped. Most analysts want the ECB to take action to tackle the threat of deflation and encourage growth in the Eurozone.
Greece Concerns Weigh
On Friday, the Euro weakened against the Pound and US Dollar on news that a proposed extension of Greece’s bailout programme will be rejected by Athens. According to Reuters Eurozone, ministers are considering extending the deeply unpopular programme for another six months but the Greek government said that it would only consider an extension of a few weeks.
The proposed extension of the bailout programme into the New Year spooked analysts who fear that such a move would have a negative impact on Greek Prime Minister Antonis Samaras efforts to achieve a victory for his choice of presidential candidate at upcoming elections. With his party already deeply unpopular an agreement to extend the bailout programme would likely offer ammunition to his opponents in the Syriza party.
GDP Figures Offer Little Hope
The Euro was also weighed upon by the latest Eurozone GDP figures, which again highlight the weakness in the currency bloc. The data showed that economic growth in the region came in at 0.2% on a quarterly basis and by 0.8% on an annual basis.
The report also showed that investment in the Euro area fell for a second consecutive quarter, raising concerns of more weakness to come.
According to Eurostat, investment in the region fell by 0.3% in the third quarter, exports slowed from 1.4% in the second quarter to 0.8% and imports expanded by 1.2%.
Economists are losing patience with the ECB after the bank cut its forecasts for 2016. The central bank cut its forecast for 2016 GDP growth to 1.5% from 1.9%. It sees inflation of 0.5% this year and 0.7 percent next year, far off its goal of just below 2%.
‘Europe is only one shock away from deflation and another recession. The ECB should have done quantitative easing already a year ago,’ said Nouriel Roubini, chairperson of Roubini Global Economics LLC in an interview with Bloomberg.
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