Currencies in the Asia-Pacific region made sweeping gains against the euro on Thursday night after the European Central Bank announced a cautious approach to the removal of monetary stimulus.
Further to a zero percent interest rate, the ECB is currently buying €60 billion worth of assets (bonds) each month, with the goal of keeping eurozone borrowing rates extremely low. The size of this “quantitative easing” (QE) program was halved on Thursday (changes to commence in January) after the bank’s president, Mario Draghi, announced that the first three quarters of next year would see monthly purchases of only €30 billion.
This tapering of the bank’s QE program, which is akin to monetary policy tightening, was largely expected and consequently was outweighed, in terms of influence on foreign exchange rates, by Draghi’s generally dovish remarks.
There will be no “sudden end” to QE, said Draghi, and interest rates in the eurozone will be held at record lows “well past” the as yet undetermined termination date of QE.
As a consequence, the euro tumbled, to the benefit of Asia-Pac.
By Friday morning, the Chinese yuan had climbed to a fifteen-week high against the euro. The yuan’s 1.5% appreciation forced EUR/CNY down to 7.719, from rates around 7.835 sixteen hours earlier.
The currencies of the Southeast Asian bloc of Singapore, Malaysia and Thailand all strengthened against the euro to levels unseen since July. Proportionally, the currencies’ gains were similar to that made by the yuan. EUR/SGD, EUR/MYR and EUR/THB fell to 1.591, 4.925 and 38.641 respectively.
One day prior to the ECB meeting, the Japanese yen had fallen to its weakest level against the euro in nearly two years (EUR/JPY 134.50). Thursday’s announcements have of course produced a sharp reversal. The yen strengthened by 1.3% against the euro, driving EUR/JPY down from a pre-ECB rate of 134.30 to 132.60 on Friday morning. The yen nonetheless remains extremely weak by recent standards. Against the euro, it has lost 18% of its value since June 2016.
For yen traders, attention now turns to Tuesday’s meeting of the Bank of Japan, at which the bank will release its quarterly report on the Outlook for Economic Activity and Prices. At the meeting, no changes to the BoJ’s own QE program or interest rate are expected. The bank’s monthly policy statement is scheduled for 11:50am local time (GMT+9), with a press conference at 2:30pm. No time has been set for the announcement on rates or for the outlook report.
EUR/INR’s 1.6% fall to 75.55 marked the Indian rupee’s strongest level against the euro in nine weeks and also its best one-day performance in sixteen months.
As with the yen, the Australian and New Zealand currencies were staring at long-term lows against the euro (EUR/AUD, EUR/NZD highs) prior to the ECB’s meeting. Each of the currencies has since reversed by more than a percent to respective per-euro rates of 1.5186 and 1.7008.