Sterling carried higher by the Euro – 14th March 2016
Sterling carried higher by the Euro
We must spend more. That was the conclusion reached by the European Central Bank on Thursday. As well as cutting interest rates from -0.3% to -0.4% and lower the refinancing rate to 0%, the ECB also said it would increase its QE programme from €60bn to €80bn a month. The bold moves by the ECB ticked every box in the investors check list however, they weren’t quite as happy when the ECB president Mario Draghi. In his press conference he stated that interest rates could fall no further but given the current programme’s lack of success (inflation has fallen from 0.7% to 0.3% since it was announced last January), investors were not convinced that another €20bn a month would be enough to get inflation back up to 2%.
Draghi was also fairly clear that the ECB is no longer trying to weaken the Euro. Although it would doubtless prefer to see its currency at a lower level, the governing council is pinning its hopes now on pumping more money into the Eurozone economy. So up went the Euro. Since Thursday morning, a few hours before the ECB announcement, the Euro has strengthened more than any other major currency. Granted, it has not risen far – one and three quarter US cents and half cent against Sterling – but a stronger Euro does nothing to help inflation towards its 2% target.
What it did do was carry Sterling ahead in its wake. The Pound is now up by one and three quarter US cents from Thursday morning’s levels and is firmer by an average of 0.4% against the other dozen most actively-traded currencies.
Given the minimal impact of Friday’s economic statistics, the lack of any today should not trouble investors. They missed the most interesting numbers on Saturday morning when China published its figures for retail sales, industrial production and urban investment. The 10.2% annual increase in Chinese urban investment was slightly ahead of forecast but the 10.1% rise in retail sales fell short of predictions. The 5.4% increase in industrial production was also a disappointment, although it is sure to look better than the equivalent Euroland figure due this morning: 1.5% is pencilled in there.