Sterling hit a seven-year high against the euro yesterday as the European Central Bank began an asset purchase programme that will pump over a trillion euros into the European currency bloc. The ECB said yesterday that it and the euro zone’s national central banks had begun buying government bonds under its quantitative easing programme, which is aimed at igniting inflation and growth in the euro zone. In contrast to the ECB’s ultra-loose monetary policy, investors are expecting the Bank of England’s next policy move to be a rise in interest rates.
The euro slid to a near 12-year low against the dollar this morning, as the U.S. currency found steady bids on the back of expectations the Federal Reserve may raise interest rates as early as mid-year. The European Central Bank, in contrast, remains deeply committed to monetary easing. It just launched its 1 trillion euro bond buying programme on Monday, driving euro zone debt yields lower to weigh on the euro. The euro went as low as $1.0800, down 0.4 percent, its lowest since September 2003.
The dollar hit a near eight-year high against the yen this morning on mounting speculation that the Federal Reserve will lift interest rates by mid-year as the US economy picks up strength.Friday’s jobs data added to growing evidence that the US economy is the recovery track and fanned expectations that the Fed will lift rates as early as June. On Monday, Dallas Fed President Richard Fisher warned of a recession risk if a rate hike was delayed. The dollar has surged after the Fed wound up its bond-buying quantitative easing (QE) in late 2014. That came just as the Bank of Japan stepped up its own similar programme, while on Monday, the ECB embarked for the first time on QE as it tries to fend off deflation in the euro zone.