End to ECB Quantitative Easing Programme Fails to Boost Euro

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  • Australian Dollar Strengthens on Higher Consumer Inflation Expectations – Solid manufacturing and services PMIs could add to bullishness
  • Temporary Easing in UK Political Uncertainty Benefits Pound – Worries over Brexit continue to dominate outlook
  • Euro Slides as ECB Signals Concerns Over Eurozone Outlook – End of quantitative easing not enough to shore up single currency
  • New Zealand Dollar Falls as Food Price Index Points Towards Weaker Inflation – Confidence in New Zealand economy remains lacking

Higher Consumer Inflation Expectations Support Australian Dollar

Demand for the Australian Dollar picked up on the back of December’s consumer inflation expectations survey. As inflation expectations rose from 3.6% to 4.0% this encouraged greater confidence in the outlook of the Australian economy. Higher levels of inflation could prompt the Reserve Bank of Australia (RBA) to raise interest rates sooner rather than later, undermining market bets that the central bank will remain on hold in 2019. AUD exchange rates also benefitted from the general sense of risk appetite yesterday.

A solid showing from this morning’s manufacturing and services PMIs could see the Australian Dollar making greater gains.

Pound Benefits as Conservative Leadership Challenge Fails

After Theresa May saw off a leadership challenge the Pound was encouraged to trend higher, with Conservative MPs now unable to call another challenge for twelve months. This offered investors a greater sense of political stability, even though the threat of a potential general election still remains. However, as EU leaders showed no intention of renegotiating the Withdrawal Agreement worries over Brexit soon saw GBP exchange rates come under renewed pressure.

Until markets see more clarity over Brexit the mood towards the Pound is likely to deteriorate once again.

End of ECB Quantitative Easing Fails to Boost Euro

The European Central Bank (ECB) ended its long-running quantitative easing programme at its December policy meeting as widely anticipated. However, this failed to give EUR exchange rates any boost as the move had already effectively been priced into the single currency. The Euro instead came under pressure thanks to the more dovish nature of the central bank’s outlook as expressed by President Mario Draghi, with the prospect of a 2019 interest rate hike looking increasingly distant.

Signs of resilient growth in today’s Eurozone manufacturing and services PMIs may offer the Euro a rallying point.

US Dollar Eases as Import and Export Prices Indexes Contract

November’s US import and export price indexes proved disappointing, both showing sharp contractions on the month as trade tensions bit. This limited the appeal of the US Dollar, suggesting that domestic price pressures are unlikely to pick up in the near term. The latest jobless claims data also did little to support USD exchange rates, with continuing claims rising further than forecast. All in all, confidence in the outlook of the US economy remained muted.

As forecasts point towards a slowdown in US advance retail sales in November the appeal of the US Dollar looks set to diminish further today.

Disappointing Housing Price Data Dents Canadian Dollar

As the Canadian new housing price index stagnated on the month once again this weighed on CAD exchange rates. With the domestic housing market continuing to show signs of weakness investors saw little incentive to buy into the Canadian Dollar. Oil prices offered no support to the commodity-correlated CAD, meanwhile, as Brent crude remained trapped in the region of US$60 per barrel.

In the absence of any fresh domestic data today the Canadian Dollar may struggle to find any upside.

Lack of Inflationary Pressure Continues to Weigh on New Zealand Dollar

The New Zealand food price index continued to contract in November, falling -0.6% for the second month in a row. This did not paint the most encouraging picture of the domestic outlook, leaving NZD exchange rates on a downtrend. With inflationary pressure still failing to pick up the case for any Reserve Bank of New Zealand (RBNZ) monetary tightening remains lacking.

If November’s manufacturing PMI shows an uptick on the month, however, this could shore up the New Zealand Dollar today.

Data Released

December 14th 08:30 NZD Manufacturing PMI (NOV) 52
December 14th 09:00 AUD Manufacturing PMI (DEC) 
December 14th 09:00 AUD Services PMI (DEC) 
December 14th 20:00 EUR Eurozone Manufacturing PMI (DEC) 51.8
December 14th 20:00 EUR Eurozone Services PMI (DEC) 53.5
December 15th 00:30 USD Advance Retail Sales (MoM) (NOV) 0.1%

Post by TorFX

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