Following market sentiment that the ECB could indeed look to taper in the coming months the Euro has so far been the best performer this week.
Many key market and makers now expect the European central bank to look at tapering in June with the monetary printing program to be reduce in the following months.
Following improved confidence initially spurred by French election outcome the Euro rate today improved with gains seen across many of the majors. The pro Europe candidate allowing the ECB to act with support from Germany and now France.
The speculation of a reduction in tapering is not without cause; with the Eurozone flash GDP, up 0.5% in the first quarter
Tapering is typically the reduction of a national or centrals bank policy or intervening policy activity. For example, the reduction in Quantitative easing through bond or asset purchases.
As interest rates tend to remain low when Quantitative easing is in place this can weaken a currency. When Tapering is considered this essentially demonstrates that an economy is recovering and that it no longer requires the support of quantitative easing or intervention. Therefore, improving the respective currency.
With the Euro enjoying a six-week high against the Pound GBP/ Euro rate today currently trades around 1.1648. Enjoying strength following market sentiment and possible ECB tapering change.
Regardless of the UK’s positive inflation CPI data sterling was unable to hamper the Euros ascent. The data reaching 2.7% over the expected 2.6%
The EUR/USD Rate today also enjoyed the benefits on the new-found confidence seeing the Euro rate today. Progressing from 1.0993 this morning and currently trading around 1.1094
The Euro without doubt assisted by poor building permits and new house starts data from the US.
During the UK’s afternoon trading session came the release of ZEW economic sentiment which surpassed the expected levels of 29.1 reaching 35.1 demonstrating that institutional investors felt much more confident in the economy.
The remainder of the week includes a speech from Draghi on Friday, however before this, Wednesday will see the release of the monthly final CPI which is expected at 1.9%. Anything higher would surely see the euro strengthen further.