Euro Rate Forecast

After a few weeks of consecutive losses we saw the Euro stabilise briefly towards the end of last week as Mario Draghi, President of the European Central Bank (ECB) announced the Euro would be saved at all costs. With the US, UK and China all blaming the slump in the Eurozone on poor performance of their economies, there is much pressure on the ECB to act. So just what can we expect?

‘It is highly likely Mario Draghi and the ECB will undertake or announce some kind of stimulus after his comments on Wednesday. Failure to do so would widen the gulf between Eurozone leaders and the markets, only serving to increase the uncertainty’

Will the ECB act and what will they do? Well having cut interest rates last month it is highly unlikely we will see any movement on interest rates. It is highly likely Mario Draghi will undertake or announce some kind of stimulus after his comments on Wednesday. Failure to do so would widen the gulf between the financial leaders and the markets, only serving to increase the uncertainty. So what are the options?

1 LTRO – Long Term Refinancing Operation. This project used earlier in the year helped provide extra funding for Eurozone banks via cheap long term loans.

The benefits are improved lending and a kickstart to the Eurozone economy. Arguably successful in averting crisis earlier this year. Could provide some short term gains on the Euro if announced. Despite being called long term, the drawback however is the short term nature of such measures. The measures do little to stop the debt pile mounting in Eurozone countries and would be most successful if used alongside other measures. The utilisation of such measures will simply be postponing the fundamental problems of the crisis for another day.

2 ECB – Bond Buying Programme. The ECB had been buying up the bonds of weaker member states with the intent of signalling to the markets its own confidence in the Euro.

As with the LTRO this is a short term solution which just puts the problems on the back burner for another day. Many have commented that this is one of the most likely announcements we will see on Thursday.

3 Eurobonds. Eurobonds are seen by many as a solution to the crisis. It would involve all Eurozone countries selling debt as one rather than individually. Germany (who would lose the most from this) remain opposed and I cannot see this measure being announced anytime soon.

4 Extension of ESM via the ECB. The ECB has the European Stability Mechanism which acts as a source of bailout funds. The fund has been increased  over time but there is uncertainty as it could not fully contain the debt troubles of Italy and Spain. It could be extended however as the head of the Austrian Central Bank, Nowotny said last week.

So will Mario implement these this week? It is of course impossible to predict exactly but having made comments last week it would be surpising for there not to be some new news on how the ECB plans to respond to the crisis. Will it be enough? This blogger thinks not! Summit after summit has disappointed and the recent form of the Euro has not on the whole be surprising given the massive challenges ahead. Nonetheless! This is the data to beware of this week and anyone considering a transfer involving the Euro should take note.

As it is the start of a new month approaching we have the all important PMI surveys for the UK, Europe and US, and then Thursday is the all important ECB and Bank of England Interest Rate decisions.

If you are planning any currency transfers being aware of all of your options ahead of the event could well save you money. As a specialist currency broker for one of the UK’s leading foreign exchange brokers I can explain for free all of your options so you can make an informed decision.

Please feel free to contact me directly on 01494 787 478 or even email me directly on jmw@currencies.co.uk with an explanation of what you need to do.

And as always if you would like any further information on anything in this post please let me know.