Euro slumps to 11-year low against dollar on QE announcement

23rd January 2015

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The euro crashed to an 11-year low against the US dollar last night after the European Central Bank (ECB) announced the details of its £900 billion stimulus package.

 

ECB president Mario Draghi yesterday outlined plans for the quantitative easing (QE) package that is hoped to kick-start the flailing eurozone economy. The plan will see the ECB spend around £46 billion a month to buy public and private sector debt between March and September next year, a total cost of £900 billion.

 

The QE packaged, which is aiming to boost growth and rectify the impact of deflation in the area, hit the euro hard.

 

It fell below $1.15 against the US dollar – its lowest level since 2003. The pound increased to a seven-year high of  1.32.

 

While Draghi noted that eurozone QE may lead to a weaker euro and support higher inflation, this was not a target of the policy.

 

There have been concerns of hyperinflation in the eurozone, which would be exacerbated by QE, but Marino Valensise, head of global multi-asset group at Barings Asset Management, said he did not think this would happen.

 

‘We concur with Draghi’s sentiment that QE is unlikely to lead to hyperinflaiton. The ECB has been easing policy for years, and inflation has remained persistently low, suggesting that monetary action taken to date has not been sufficient to shock the economy into a higher growth and inflation trajectory,’ he said.

 

‘The experience of QE in the United States also supports this view. Whether Draghi’s QE bazooka will finally achieve this goal now remains to be seen.’

 

 

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