Is a cut in QE justified?
The Eurozone’s economy is looking impressive, we have seen some of the best growth figures in over a decade. Mario Draghi, the head of the European Central Bank (ECB) has also hinted to a cut in Quantitative Easing (QE).
QE is essentially pumping money into an economy in order to stimulate growth. This has been done in the past in other regions with it’s success being questionable. It seems QE can be justified in the Eurozone, although it has created debt in the trillions.
QE was cut last year from €60bn to €30bn, if there was to be a further cut we can expect the Euro to strengthen considerably. I think in order for this to occur or indeed a change in Interest Rates we will need to witness an increase in inflation, something the Eurozone has struggled with for sometime. Another worry is the stance of the Federal Reserve on the US Dollar.
EUR/USD is the most commonly traded currency pair in the world. The Euro currently sits at some of the highest levels against the US Dollar since 2014 and Several Federal Reserve members have stated they are unconcerned with US Dollar weakness. This could definitely become a cause for concern for members of the bloc as the high value of the Euro could hurt exports and seriously hinder economic growth.
Keep an eye on trade data if you are looking at trading the Euro medium to long term as this will give an indication as to the health of imports and exports.
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Thank you for reading. Daniel Johnson