Business Irish

Friday 2 December 2016

Euro drops further against dollar amid ECB and Fed moves

Published 01/12/2015 | 02:30

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Click to view full graphic

The euro fell to an eight-month low yesterday against the dollar amid the prospect that the European Central Bank (ECB) will announce further stimulus measures later this week to boost the Eurozone economy.

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The meeting of the Governing Council on Thursday is the focus of many investors and analysts.

They expect ECB President Mario Draghi to announce an extension of the bank's quantitative easing programme as he attempts to increase inflation in the Eurozone, and cut interest rates on euro deposits.

By contrast, and in a move that is widely expected to put even more pressure on the euro's value, the Federal Reserve is expected this month to announce that it is increasing interest rates.

By mid-afternoon yesterday, the single currency was trading at $1.05.

That's down from $1.16 on August 24 and $1.25 on December 16 last year.

A weakening euro against the dollar is a boon for Irish exporters and for the tourism industry here, but makes it more expensive for Irish visitors when travelling to the United States.

The euro is down around 4pc for the month and more than 12pc in 2015 so far. The market is divided on how far it will fall this year towards parity with the dollar.

John Moclair, Head of Retail Treasury Sales at Bank of Ireland, said if those on the ECB's Governing Council in favour of action want to convince more sceptical members, they'll need to argue strongly that the threat of deflation does indeed require a more aggressive stance.

"Investors have become accustomed to Mario Draghi over-delivering on monetary policy over the past two years and they are banking on him pulling one more rabbit out of the hat.

"However, with expectations so high, is there a real risk of disappointment?," Mr Moclair asked.

Meanwhile, a new Eurozone fund for troubled banks will become operational from January as planned because a sufficient number of member states have completed the legal procedures,

The Eurozone's Single Resolution Fund was agreed after the debt and banking crisis to make sure that in case of new bankruptcies, banks would foot the bill rather than taxpayers.

Irish Independent

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