European Quantitative Easing And The Greek Elections…Now What For The EURO?
GBP/USD is currently trading at about 1.5130, GBP/EUR is at about 1.3090, and so GBP/EUR and GBP/USD remain very similar to where they were this time on Friday. Sterling pairs are not really in focus over the course of the past 48-hours of trading, it has been obviously the Swiss Franc pairs given the moves that we saw from the Swiss National Bank over the course of Thursday and Friday session, as they have really got the market headlines going into the weekend.
It will however all be about the Euro (the single currency) over the course of this week, with the European Central Bank meeting on Thursday and the Greek election on Sunday, all coming together in a wave of volatility for the single currency moving forward. We’ll know by this time next week whether the European Central Bank has disappointed or delighted investors with the QE programme and what the government of Greece will look like moving forward. On the ECB, 93% of respondents on a survey by Bloomberg are expecting quantitative easing from the ECB this Thursday. Whether that will be sovereign bond purchases, a mixture of sovereign bond purchase and corporate bond purchases, what they might buy, we’re looking for a fund size of around €500 billion and €700 billion without a time frame on it.
We know that the European Central Bank is very worried about inflation and inflation expectation moving forward. So I’ll expect that Mario Draghi will say that “it’s not a case of ending it by the end of 2016 or the end of 2017”, it’ll be the case of “we will end purchases when we believe that inflation and inflation expectations are moving back towards target strongly”. So that is expected to happen on Thursday. We’ll have to say that we’re looking for the European single currency to maintain its weakness into the meeting regardless of what happens from the SNB on Friday. GBP/EUR is still above that 1.3000 level, EUR/USD is only a cent above the 9-year lows that it vowed over the course of Friday session.
Elsewhere, as I’ve said the Greek election is billed for Friday, Alexis Tsipras, Syriza Party is still around 3% in the lead according to the latest opinion polls that may shrink as we get closer to the actual vote next Sunday., but an immediate decision will be needed to be made by the new government. We know that the bailout packages or the aid packages for the Greek economy expires by the end of February and the Greeks will be left without cash by the end of June likely if a new deal is not struck with its international creditors.
Syriza Party may have a 3% lead in the opinion polls, but that doesn’t guarantee too much of a government majority. So we’re looking to see whether they start bargaining, whether the rhetoric around rescheduling Greek debt or leaving the Euro starts to be tempered as they caught some more centric voters as we move closer to polling day.
It’s Martin Luther King Day in the United States and the data calendar is fairly quiet today, but we do have some important stuffs in the UK over the course of the week, with the latest job numbers coming out on Wednesday. We’ve seen in the United States for example that a fall in unemployment rate is by no means a guaranteed of a rising wage pattern within the economy. We saw wages actually fall in the U.S. over the month of January. We’re looking for wages to rise by that 1.7% y/y in the UK and put that against the 0.5% figures that we’re seeing in the CPI, it does mean real wage increases in the UK, thus beneficial for consumers.
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