The Euro to Pound Sterling (EUR/GBP) exchange rate fell to a seven-year low on Thursday as the single currency was battered by the Swiss National Bank’s decision to ditch the Swiss Francs currency cap against the Euro.
SNB Decision causes chaos
The decision by the Swiss bank to slash interest rates and remove the cap on the currency caused chaos in the currency markets. The single currency was crushed whilst the Franc surged to a record high as the cap, which had held back cash inflows into Switzerland was removed and flooded the nation with money.
‘This move wasn’t completely unexpected; it was becoming increasingly painful for the SNB to maintain this support for the Swiss currency cap. That said, the additional interest rate cut is a surprise and it will now mean investors will have to pay around 80 basis points to hold Swiss currency on deposit for 3 months. The SNB hopes that this will dissuade investors from viewing the Swiss Franc as a safe-haven and therefore avoid a negative shock for the Swiss economy,’ said Alex Dryden fro JP Morgan.
The move by the SNB increased expectations that the European Central Bank (ECB) will introduce a full-blown quantitative easing programme at next week’s policy meeting.
The move follows Wednesday’s announcement by the European Court of Justice that the ECB can legally buy large quantities of Eurozone government debt in order to stabilize the region’s economy. The decision paves the way for a QE programme being introduced.
Earlier in the session the Euro had found some support data which showed that Germany’s economy expanded at its fastest pace in three years in 2014 and posted a third consecutive fiscal surplus despite coming close to entering recession in the third quarter of the year.
Another report also showed that the Eurozone’s trade balance surplus rose less than forecast in the last quarter. According to Eurostat the regions trade balance rose to €20 billion from the €19.4 billion recorded in the preceding quarter. Economists had been expecting the regions trade balance to widen to €21.3 billion.
The Euro is forecast to remain weaker on Friday as data is expected to confirm that the Eurozone slipped into deflation in December.
Euro Exchange Rate News:
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