GBP/EUR Races Higher As ECB Promise to Pump 60BN EUR Into the Eurozone

Above: The ECB's Governing Council has finally taken the QE plunge.

The pound to euro rate has shot higher on currency markets as the ECB announces its quantitative easing programme.

The sterling/euro exchange rate was sent towards the mid 1.31’s on the back of the news, a test of 1.32 could now be possible.

The reason markets are selling the euro so heavily is owing to the fact that they had expected a smaller amount of cash to be made available.

ECB President Mario Draghi says: “Combined monthly purchases will be €60 billion, to be carried out at least until end-Sept 2016.”  

"Overall, the programme is probably more aggressive than expected owing to a) the partial risk-sharing and b) the potential open-endedness of the program," says a note from Goldman Sachs.

Dennis de Jong, managing director at UFX.com says:

“Mario Draghi has been left with little choice than to begin a more robust than expected quantitative easing programme in a bid to awake the economies of the eurozone from their slumber.”

“This play is seen by many as the last roll of the dice for the beleaguered euro. QE has had some success in the US and UK, but with such a patchwork of economies and banking systems in the eurozone, the jury is very much out. There will be a lot of people holding their breath over the coming months.”

This Will Not Work

However, there are doubters already slamming the decision.

James Sproule, the IoD’s chief economist has said:

“If QE is used simply to support government deficit spending through the purchase of sovereign bonds, it may provide a short term Keynesian boost but it also allows politicians, once again, to avoid tough decisions.

“Ultimately, QE on its own risks setting the Eurozone on the road to Japanese-style stagnation and deflation.

“QE is not, should not and cannot be seen as a substitute for the kind of structural reforms to labour and product markets that the EU so desperately needs.”