by Jane Fisher
The British pound has advanced +1.14% against the euro today to touch a peak of 1.3185, its highest in almost 7 years, or since February 2008. Sterling now stands almost 12 cents higher than at the start of 2014.
The pound has strengthened versus the common currency, because the European Central Bank has this afternoon announced a large program of emergency monetary stimulus, called quantitative easing. This is intended to prevent the Eurozone from entering deflation, and revive the currency bloc's economy.
Sterling climbs, as ECB announces €60bn of QE a month
Sterling is higher versus the euro today, because European Central Bank chief Mario Draghi has announced at his regular press conference in Frankfurt that the ECB will inject €60 billion a month in monetary stimulus into Europe's financial markets, up to September 2016. To inject these funds, the Eurozone's central bank will buy assets from private entities, like corporations, and public entities, such as governments.
This announcement has lifted the pound, because it exceeded the financial market's expectations for Eurozone QE; the consensus forecast was for the ECB to buy just €50bn a month in assets. This implies that the central bank will act more aggressively than previously thought to prevent Eurozone inflation falling further.
In December, prices in the Eurozone fell -0.2% compared to a year ago, the first annual decline since the financial crisis in 2008. This has spurred the European Central Bank to act to avoid the common currency bloc entering deflation, whereby prices continually fall, leading to economic stagnation, akin to Japan's "lost decade" of the 1990s.
The ECB's plan has weakened the euro, as it involves electronically printing vast quantities of money. This devalues the common currency, as there are more euros in circulation, thereby lifting other currencies like the pound by comparison.
