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Euro slumps as ECB reportedly open to extending bond purchases

currency-newsEuro slumps as ECB reportedly open to extending bond purchases
The euro was placed on the defensive on Thursday as sources suggested the European Central Bank (ECB) could temporarily extend its quantitative easing programme.

Meanwhile, the pound is stuck in a narrow range so far this morning, with GBP/EUR muted at €1.1703 and GBP/USD flat at $1.3214. GBP/CAD is rangebound at C$1.6803, while GBP/AUD and GBP/NZD hold steady at AU$1.8475 and NZ$1.9465, respectively.

Looking ahead, will another strong US inflation print propel the US dollar higher today?

What’s been happening?

The euro tumbled through yesterday’s session, after Reuters reported that members of the ECB’s governing council have been discussing plans to increase its Asset Purchases Programme (APP) at its December policy meeting.

Also weighing on EUR exchange rates was the publication of Germany’s latest trade figures, which reported a surprise narrowing of the country’s trade surplus in October.

The US dollar, meanwhile, was underpinned by risk-off flows on Thursday as renewed Omicron concerns and US-China tensions rattled markets.

The appeal of the ‘greenback’ was also bolstered by the latest US initial jobless claims, after new claims fell to their lowest levels since 1969, bolstering expectations the Federal Reserve may accelerate the tightening of its monetary policy.

At the same time, the pound fluctuated through yesterday’s trading session, initially falling amidst fears England’s new Covid restrictions would prevent the Bank of England from hiking interest rates this month, before rallying later in the day.

What’s coming up?

In the spotlight today will no doubt be the publication of the US consumer price index later this afternoon.

Economists predict US inflation will have continued to accelerate in November, with some forecasting it might have even climbed as high as 6.9%. Such a strong reading could stoke expectations that the Fed will need to bring forward its next interest rate hike.

In the meantime, the pound could face an uphill battle today, following the publication of the UK’s latest GDP figures. October’s monthly release reported growth slowed to just 0.1% at the start of the fourth quarter, falling well short of the 0.5% expansion forecast.

Finally, the focus for EUR investors will be on a speech by ECB President Christine Lagarde later this morning. Should she confirm the ECB is considering extending its asset purchases then the euro is likely to weaken.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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