The euro edged away against the greenback on Monday from an 11-year low as anticipations grew among the investors for a crucial meeting scheduled later in the week where the European Central Bank is expected to take some of its boldest steps till today to revive the sluggish euro zone economy.
The economists and market analysts are widely expecting the ECB to launch quantitative easing measures when it meets on Thursday in Frankfurt. However, it’s still not clear that what will be the design of the ECB’s program, how big it will be, or whether it will be seen as sufficient as well as credible measure of the Central Bank.
A news agency poll, published on Monday, showed the traders at the money market are expecting the Central Bank to declare 600 billion of sovereign bond purchases. However, they consider this will not be enough to bring the inflation rate up to target.
The data, which was released on Monday, showed the current account balance of euro zone shrank in the month of November, indicating continued weakening of the European currency, but the market analysts said the single currency could bounce if the Central Bank disappoints with its measures on Thursday.
The euro was trading up 0.3 percent at USD 1.1601 on the day but not far from a trench of USD 1.14595 hit on Friday. The European currency is already down over four percent in January, which is its biggest monthly decline in 2-1/2 years.
Stephen Gallo, European head of FX strategy at London-based BMO Capital Markets, said, “If the ECB disappoints, there is definitely an argument that you would get an immediate covering of euro shorts and it may also lift euro area bond yields.”
Meanwhile, the Swiss National Bank deleted one of the few remaining pillars of support of the euro last Thursday when it surprised markets by abandoning its three-year-old cap on the Swiss currency against the European counterpart. The move also fueled speculation that the Swiss bank was acting in anticipation of extra aggressive easing measures from the European Central Bank.
In a research note, Adam Cole, global head of FX strategy at London-based RBC Capital Markets, said, “Following the SNB action last week, there has been an (unrealistic in our view) build-up of expectations that the ECB could make a BoJ-style “shock and awe” announcement.”
The euro was up 1.5 percent on the day against the Swiss franc, trading at 1.0088 francs. But the European currency has still lost 16 percent against the Swiss franc after the SNB left its cap of 1.20 francs per euro.