by Brian Miller
The British pound sterling has jumped +0.58% versus the euro on the foreign exchange market today, to hit a peak of 1.3104. This is just half a cent from sterling's strongest since February 22nd 2008, or close to 7 years. It's also more than 10 cents higher than at the start of 2014, a little over 12 months ago.
Sterling has risen, chiefly because there is an almost universal expectation among economists and investors that the European Central Bank will unveil a program of emergency monetary stimulus this Thursday.
Pound rises, as ECB set to unveil its own version of QE
Sterling has climbed to 1.3104 today, because it's expected that the European Central Bank will reveal it's own version of "quantitative easing", a form of monetary stimulus whereby a central bank injects billions into a region's financial markets. In this case, there's a near-consensus among economists that the ECB will initiate a stimulus of €550 billion.
The ECB is forecast to do so, chiefly to ward off the possibility of deflation in the Eurozone. This is where the rate of inflation falls below 0.0%, meaning that prices begin to drop, and so people stop spending in the expectation that goods and services will continually become cheaper. Deflation is widely associated with economic stagnation, and was experienced by Japan in the 1990s during what's called its "lost decade."
However, were the European Central Bank to initiate quantitative easing, it would nonetheless weaken the euro, in spite of the fact that it's intended to revive the Eurozone's economy. This is because QE involves electronically printing billions of euros, thereby drastically devaluing the common currency, and strengthening other currencies by comparison.
Hence, sterling has gained against the euro today, in expectation that the European Central Bank's actions this Thursday will devalue the common currency.
