Euro Declines as ECB Lengthens Asset Purchase Programme

The Euro was down by 1 percent on Thursday after the European Central Bank (ECB) reduced the monthly budget of its asset purchase programme (APP) and extended its timeframe from March 2017 to December 2017. The ECB announced that its monthly spend will be cut down to €60 billion from €80 billion. However, the bank revealed that it could still change the amount if it felt it was needed. Steven Englander, the global head of foreign exchange strategy for Citigroup, said the decline didn’t make much of a difference, as the extension still means the bank will make a lot of purchases. “The nine months is important because it pushes out the period over which you expect rates to be negative,” he said.

The euro had been enjoying a strong run, despite the loss of Italian Prime Minsiter Matteo Renzi at the referendum on constitutional reform over the weekend. The loss was expected, which allowed the euro to stay up, and even trade at a four week high of $1.0872 after the ECB’s announcement. The euro then declined by 1.25 percent later in the day, to $1.0618. “It didn’t help the euro was at the highs; we had a clearing of euro shorts after the Italian referendum,” said Vassili Serebriakov, FX strategist at Credit Agricole in New York.

“The fact that the euro was already sitting at those elevated levels contributed to the market being more comfortable to sell it after the ECB,” he said. With the Federal Reserve expected to raise rates after its meeting next week, the euro might stay low for the time being.