US Dollar rallies to new highs as markets await ECB's quantitative easing

Enrique Díaz-Álvarez30/Νοέ/2015Currency Updates

The Thanksgiving holiday in the US did not change the trends we’ve seen dominate the currency markets in November. The US Dollar rallied to a fresh multi-year high against its major peers, as expectations continue to build for serious policy easing from the European Central Bank this week, and commodity prices worldwide struggle to find a bottom.

European currencies continued to drift lower against the Greenback. EUR/USD is nearing on lows last seen during the peak of the Greek Crisis and the Euro has broken the 1.06 level against the US Dollar, with some market participants wondering whether a QE extension has already been priced in.

Whilst GBP has seen a positive week of information surrounding the lower-than-expected cuts to public spending, this has been overshadowed by the important announcements due from the other G3 currencies.

Looking at the week ahead, we think that it’ll be difficult for the ECB to surprise markets and hence we expect the Euro to bounce around current levels against its major peers into year-end.

Major currencies in detail:


The Autumn Statement surprised our and the markets’ expectations. The government announced that it will lessen planned public spending cuts over the next few years. This modest fiscal easing is almost entirely offset by tax increases, however, it is generally understood to have a higher impact in the near term, so overall the announcement supports UK economic growth.

Sterling rallied immediately following the news, but this faded later in the week as focus shifted to the ECB’s upcoming meeting. Sterling ended the week slightly down against both the Euro and the US Dollar.


While all eyes are now fixed on Thursday’s ECB meeting, we did have some solid economic data out of the Eurozone last week.

The business sentiment PMI indices surprised modestly to the upside, as the composite index rose 0.5 points to 54.4, near a five-year high. This is consistent with economic growth of slightly above 2%, although lately actual data has unperformed the sentiment surveys.

However, currency markets mostly ignored this positive news, focusing entirely on prospects for ECB easing on Thursday. We expect ECB action on three fronts: expanding the size of the QE programme, cutting deposit rates and expanding the range of instruments the ECB purchases.


More mixed news out of the US economy.

Although third-quarter GDP was revised up to 2.1% from the initial 1.5% reading, this change was entirely due to higher inventory accumulation, which is normally unwound over the following quarters.

On the other hand, the October trade deficit was better than expected, and it seems the external sector will at least stop subtracting from US growth in the fourth quarter. This is an impressive performance given the relentless appreciation of the US Dollar.

Overall, the US economy seems to be able to maintain its 2-3% pace of growth and steady job creation, even in the face of currency appreciation and modestly higher interest rates, thus enabling the Federal Reserve to start putting up rates at the December meeting.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.