Currency volatility as ECB announces the return of quantitative easing
Liam Sheasby, News Editor
12 Sep 2019, 5:06 p.m.
The European Central Bank has announced the return of quantitative easing – only eight months after initially ending the stimulus measure.
The decision, likely the last major action by Mario Draghi before he departs as ECB president, is designed to counter the economic regression currently being experienced in the Eurozone. The US/China trade war has hurt Germany in particular, with manufacturing and car production bearing the brunt. Elsewhere, issues over coalition governance and debts are at play in Spain, Italy, and Greece, with the uncertainty making investors nervous.
The most significant decision taken by the ECB is the additional deposit rate cut, from -0.4% to -0.5%. This rate is charged on commercial bank deposits and is designed to make lending (whether to consumers or to businesses) more favourable, thus keeping money flowing around the Eurozone economy.
The immediate response was nearly a cent loss for the Euro against the US Dollar, dropping from $1.102 to $1.093, while against the Pound the Euro fell by half a cent from £0.894 to £0.889. The Euro currency has since made almost all of its losses back as investors come to terms with what the policy changes mean.
Not one to miss out on an opportunity to criticise those who disagree with him, President Trump took to Twitter first thing to slate the Federal Reserve for failing to match the rate cuts of the ECB; something Trump argues puts the US at a competitive disadvantage despite the current successes of the American economy compared to the slowing Eurozone growth.
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!— Donald J. Trump (@realDonaldTrump) September 12, 2019
In the UK, the Pound is steady at $1.23 following the recent block to no-deal in the House of Commons, though the publication of the Operation: Yellowhammer report has unnerved some investors in the face of the potential damage to jobs, wages, food supplies, medicines, and fuel in the UK in the event that no-deal goes ahead; a possibility given Prime Minister Boris Johnson’s unwillingness to go to Brussels to seek another extension to the deadline.
In contrast to the doom and gloom, British job figures are just shy of the all-time high set in the 1970s. Pay and bonuses are at an 11-year high having climbed 4% compared to August 2018, though accounting for inflation, the 4% rise is nearer 2.1% for total pay (including bonuses) and 1.9% for regular pay, but the news is still a dash of positivity much needed.