The Euro to Pound Sterling (EUR/GBP) exchange rate weakened to a new 7-year low on Friday as the single currency continued to be hammered lower by expectations that the European Central Bank will introduce quantitative easing at next week’s policy meeting.
Swiss Affect Shaking Markets
Volatility remains high on the currency markets after the Swiss National Bank stunned the financial world by cutting interest rates and ditching its exchange rate cap with the Euro. The Euro collapsed as investors saw the move as a sign that the ECB will introduce monetary stimulus measures such as quantitative easing next week. Investors flocked to safer assets such as the Pound and higher yielding currencies such as the Australian Dollar.
Expectations for a QE programme being implemented received another boost of Friday, as European Central Bank Executive Board Member Benoit Coeure sounded like the launch of such a programme was a done thing as he described its aim.
‘The aim of QE is to ensure trust in the capacity of a central bank to stabilise inflation. We will take the US and British experiences into account to determine the amount of bonds to buy in order to restore confidence in the fact that inflation will come back to a level close to and below 2%,’ Coeure said in an interview.
Inflation Data Boosts Need for QE
Domestic data out of the Eurozone also put pressure on the single currency as it confirmed that Eurozone inflation turned negative for the first time since September 2009 as energy prices tumbled due to the sharp slide in oil prices.
According to Eurostat the region’s Harmonised Index of Consumer Prices fell by -0.2% on a year on year basis reversing the 0.3% rise recorded in the previous month of November. The drop was the largest seen since 2009 and increases fears that the currency bloc is sliding deeper into deflation territory.
The Eurostat compiled data also showed that energy prices plunged 3.3 % on a month-on-month basis and fell by 6.3 % to post an annual decline. Fuels for transport tumbled 10.8% year-on-year and heating oil declined 20.4% in annual terms.
Unprocessed food was 1.0% cheaper in December than a year earlier and tobacco was shown to be 0.2% less expensive.
Core inflation, which excludes food, alcohol, tobacco and energy remained stable at a reading of 0.7% however, the figure was revised lower from 0.8%.
Out of the nineteen members of the Eurozone, sixteen reported negative annual rates of inflation with Greece, Cyprus and Spain reporting the worst figures.
Euro Exchange Rates:
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