Euro Falls to Twelve Year Low against Dollar

The effects of quantitative easing have begun to bite, with the euro proving to be one of the first victims of the policy.

On Wednesday, commentators like OANDA watched with trepidation as the euro fell to a 12-year low against the dollar, rounding off the decline that has been in evidence ever since the European Central Bank’s policy kicked off at the start of the week.

The Effects of Quantitative Easing

Wednesday trading saw the dollar plumb to another new low, falling to its lowest rate against the dollar in twelve years.

This fall marks one more milestone for declining prices since the beginning of the week, when the European Central Bank’s quantitative easing policy first came into effect. The 1.1 trillion euro asset-buying programme catalysed a broad deterioration for the currency across the forex markets.

The policy came into effect on Monday, as the European Central Bank began creating new money in order to buy sovereign bonds. The policy is intended to support growth and raise euro zone inflation above zero, yet its effects so far have not been welcomed by traders.

The move by the European Central Bank caused yields on the debt of nearly all euro zone countries to fall to record lows. Indeed, the yield on ten-year German bonds, which set the standard for euro area borrowing costs, dropped to under 0.2 per cent, the lowest figure on record.

The Dramatic Decline of the Euro

In response to the introduction of this policy, the euro began to lose ground, dropping half a per cent against the dollar on Wednesday to trade at just $1.0638 – its lowest level since April 2003. This means that the currency has decreased 12 per cent since the beginning of January 2015, and nearly 25 per cent since May 2014.

The currency has not only lost ground against the dollar. Its standing against sterling has also dropped, with the euro falling half a per cent to 70.62 pence, its weakest state since November 2007. In addition, the single currency has weakened against the yen, declining to an 18 month low against the Japanese currency.

BMO Capital Markets Stephen Gallo explains: “It’s the euro versus everything. The way these moves look it’s not just speculators piling into euro shorts; it’s actually net flow of capital out of the euro.”

With continuing uncertainty surrounding cash-strapped Greece, the future of the euro has never seemed so uninspiring.

About the Author
Sean Lee is a passionate blogger and web content editor with a string of highly-researched and informative articles to his credit. At present most of his posts are focused on various finance related topics including Money, Forex trading, Insurance and credit handling etc. His years of experience in the field of finance has made him one of the leading financial advisers of modern times. He doubles up as financial speaker in seminars, work shops and conferences as well. You can connect with Sean

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