FX Roundup: Euro jumps in wake of ECB move

The euro spiked in intraday trading on Thursday, as the European Central Bank unveiled an economic stimulus package that fell short of analysts’ expectations but did spring a few surprises.

ECB President Mario Draghi announced the central bank’s asset purchase programme will be extended to March 2017, from the originally intended end date of September 2016. However, the ECB decided to keep asset purchases at €60bn a month, in a shock move, contrary to analysts who had expected an increase to around €75bn.

The ECB will extend the range of assets that are eligible for quantitative easing to include the purchase of regional and local government debt. Draghi added that the central bank will reinvest the principal payments on the securities purchased under the QE programme as they mature, as long as necessary.

The announcement followed the ECB's policy decision which revealed a 10 basis point cut to the deposit rate to -0.30%, as expected. Interest rates and the marginal lending rate were unsurprisingly left unchanged at 0.05% and 0.30% respectively.

The euro surged 2.36% against the dollar to $1.0865 following Draghi’s comments, but by 1418 GMT, the rally dropped pace with €1 changing hands for $1.0799, up 1.73%.

Jonathan Loynes, Chief European Economist at Capital Economics, said the ECB had failed to live up to its own hype. “Hopes that the ECB would make up for the disappointingly small cut in its deposit rate [to -0.30%] with a decisive expansion of its asset purchase programme have been dashed by the announcement that it has merely extended the programme from September 2016 to March 2017.

“The monthly purchases were left unchanged at €60bn. Admittedly, the extension of the programme will raise the total programme from €1.1trn to close to €1.5trn. But that is only equal to about 15% of euro-zone GDP, well short of the 25% figures for the Bank of England and US Federal Reserve programmes.”

James Hughes, Chief Market Analyst at GKFX, said “ The big story is the disappointment in the markets as the as the euro surged through 1.09 after expectations were that we would see more in terms of policy.

“This has been a huge failure from the ECB according to the markets, much more was expected and little delivered that was considered thinking outside of the box so it seems that Mario Draghi has been punished this time for hitting market expectations.”

Elsewhere, the dollar was up 0.05% against the yen exchanging at JPY123.30. In tandem, the pound rose 0.52% to change hands at $1.5028. The greenback also fell 0.79% against the Swiss franc exchanging at CHF1.0103, staying just above parity in its favour during afternoon European trading.

Concurrently, the dollar also traded marginally higher against the Mexican peso and Canadian dollar by 0.18% and 0.06%, changing hands at MXN16.5948 and CAD$1.3351 respectively. However, it could not sustain the momentum across a much wider basket of commodity linked currencies.

The Australian dollar rose against its US counterpart by a marginal 0.16% changing hands at US$0.7321, while the New Zealand dollar rose 0.06% against the greenback changing hands at US$0.6644.