The Euro to Pound Sterling (EUR/GBP) exchange rate fell to its lowest level since 2008 on Wednesday as Moody’s said that the risks of a Greek exit from the Eurozone have increased and as ruling by the European court of Justice increased the likelihood that the European Central Bank (ECB) will launch a quantitative easing scheme next week.
Traders focused widely ignored the release of economic data which showed that Eurozone factories increased their output in November as they chose instead to focus on events in Greece, the ECB and Italy. According to the Eurostat compiled report, industrial production across the 19-member region increased by 0.2% on a month on month basis but was still 0.4% lower than the previous year.
QE expectations rise
Economists have raised their bets that the ECB could introduce a quantitative easing programme at next week’s policy meeting after a number of leading ECB policy makers said that they were ready to implement such a programme.
A ruling by the EU’s top court, which said that a 2012 bond-buying programme designed to save the Eurozone only needed slight chances to fall in line with the law, was deemed by observers to be a green light for the central bank to press ahead with QE.
‘Grexit threat rises’
Moody’s investor services has said that the upcoming Greek general elections has raised the chances of the recession ravaged nation leaving the Eurozone, something that would have negative impacts on other indebted members of the single currency bloc.
‘Any exit from the single currency would be a defining moment for the Euro: it would show that the monetary union is divisible, not irreversible. However, although a Greek exit today would likely trigger renewed recession in the remaining Euro area, the credit impact may be less pronounced than in 2012 because contagion risk from a Greek Euro exit has materially declined and because policy makers now have stronger tolls to limit the damage from such an event,’ said Colin Ellis, Moody’s chief credit officer.
Greeks head to the polling booths on January 25 and the far-left Syriza party looks set to win the most votes.
Italian President Resigns
Political turmoil in Italy is likely to resurface after President Giorgio Napolitano announced his resignation today. Political uncertainty could occur, as Prime Minister Matteo Renzi will need to find a replacement that would be willing to support his reform agenda and dissolve parliament at his request if he seeks to push for early elections.
Euro Exchange Rates:
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