Market News & Insights
10 March 2015

EUR in Freefall

EUR/USD 1.0766
GBP/USD 1.5052
GBP/EUR 1.3980 (0.7152)
EUR/CHF 1.0700
GBP/CHF 1.4961
GBP/AUD 1.9740

A new week but the same old Euro as the single currency continued to slide as the ECB began their first purchases in their €1.1 trillion QE program. EURUSD broke to fresh 11 year lows, while EURGBP dropped to fresh 7 year lows (again). Each day appears to bring fresh lows for EUR pairs and the big question now is will we see parity in EURUSD, that certainly appears to be the trajectory at the moment and if the market gets its June rate hike from the FOMC, this could well be the case. There are plenty of ifs and buts between now and then and one concern voiced through yesterday was if there was a large enough market for ECB purchases. Risk took a somewhat tentative tone, European stocks sold off after some shaky comments as Eurozone finance ministers met to discuss reforms proposed by Athens, Greek leaders once again taking an aggressive line on early talks. Despite EURUSD falling to fresh lows, overall the USD faced selling pressures. US markets traded mostly higher as M&A news helped risk, as did a release from apple, including details of the new Apple watch.

The USD traded back higher in overnight trade as once again rate hike expectations take hold of the greenback, Fed funds futures have been on the rise since Friday suggesting the Fed will raise interest rates twice by year end. The economic calendar was quiet through yesterday and is much the same again today but there were plenty of Fed speakers to focus attention on, most notable comments from the Feds Fisher last night suggesting a prompt rate hike is needed in the US. Fisher has long been a vocal supporter of rate hikes sooner rather than later so this rhetoric comes as no surprise but focus will now be on the FOMC’s March 17-18th meeting. US data is very light this afternoon and as such look for USD strength to be derived from interest rate expectations and to a lesser extent the risk environment.

There is a lot going on in the Eurozone at the moment but very little of it is helping the EUR. Despite signs that the economic data for the region is beginning to improve the Euro can find very little to support a rally back higher. EU finance ministers will meet once more in Brussels with Greek funding issues likely to take centre stage and realistically we are unlikely to see any concrete agreement emerge, as in terms of Greeks talks this is very early stages. Greek leaders will meet with the EU, ECB and IMF on Wednesday so hoping for anything in advance of that is like betting on a 100/1 shot in Cheltenham. Several ECB speakers cross the wires today but the economic calendar is light and the EUR continues to be under pressure.

Despite EURGBP signalling a strong pound we only have to look towards GBPUSD to see the real dominant currency remains the USD. The pound has struggled for any meaningful traction against the USD, despite almost all major UK data points coming in better than expected, with the exception of last week’s services PMI reading. GBPUSD actually sold off on decent figures last week so it came as no surprise to see aggressive selling once the services data was weaker than expected. UK rate hike expectations are anchored somewhere between Q4 this year and Q1 next year and as such the outlook for US rates is helping USD push GBPUSD lower, also helped by the rapid decline in EURUSD. Again the UK data calendar remains light today but the BOE’s Carney will be speaking at the House of Lords, while elsewhere his fellow committee members Fisher and McCafferty are also speaking at different engagements. Anything related to BOE policy especially the potential timing of rate hikes, has the ability to move GBP pairs.