Investors pick euro as their ‘safe haven’
Lee Chappell, Corporate FX Dealer at Currencies Direct, throws the spotlight on this month’s global financial trends
The dust has settled in Greece for now, giving the European Central Bank (ECB) and its boss, Mario Draghi, time to think about how to resolve the downward pressure on eurozone inflation.
Investors who want a ‘safe haven’ currency are busily moving to the euro in response to the expected interest rate rise in the US (due this month) and global fears over China’s economic meltdown, which have made the US dollar look less attractive than usual.
This euro buy-up has caused inflation to stall, which should mean that it is about to decline slightly. The ECB has once again been forced to ponder whether it ought to extend its quantitative easing (i.e. bond purchasing) programme, which is scheduled to end in September 2016.
In Mr Draghi’s latest speech, he suggested that the programme could be extended if the eurozone’s economy as a whole isn’t showing enough growth. The ECB wants inflation to hover close to 2%, but inflation is expected to decline into negative territory in the lead up to 2016.
On 3 September, the ECB decided to keep rates on hold for at least another month, which was no surprise to the markets. With so much uncertainty still surrounding a number of issues in the EU, investors would be astonished if the rates were moved before the turn of the year.
With the euro looking a bit sickly against its major counterparts in recent months, the export industry is thriving as foreign businesses pour money into local trades by buying goods at a ‘cheaper’ rate of exchange.
If you’re looking to move money in or out of the eurozone, it’s a good idea to talk to a currency specialist before acting at a moment that could cost you a lot of money. One of our friendly experts will be happy to help you navigate the ever-changing foreign exchange markets. www.currenciesdirect.com