After a brief recovery yesterday afternoon the GBP/USD cross fell to a fresh one year low during today's session, following comments made by the European Central Bank (ECB) President Mario Draghi at the central banks monthly press conference.
As markets opened this morning Sterling/dollar was sitting just below $1.60 but during today's press conference Mr Draghi announced the ECB will do everything within the banks mandate to aid the flagging Eurozone. Mr Draghi went on to say the central bank will start purchasing asset backed securities for the next two years, which is essentially another form of quantitative easing and led to GBP/USD falling by a cent and a half to a low of $1.5851.
So why has this impacted GBP/USD?
Quantitative Easing (QE) is used by central banks to pump money into underperforming economies, which is what the Federal Reserve have been doing for the past six years. The problem with QE is that the central banks are printing money which in the end starts to devalue a currency, in this case the euro. This leads to uncertainty, which in turn leads to investors looking for safer options and that is exactly what we witnessed today.
The U.S. dollar has always been seen as a safe-haven currency and with the so much uncertainty hanging over the Eurozone the dollar seems to have become the currency of choice for market players and investors.
Expect more volatility tomorrow.
As I mentioned in yesterdays post, Friday will see the U.S. release their latest non-farm job numbers. This is a highly anticipated piece of data and always seems to cause a fair amount of market volatility. If the numbers of jobs created comes in higher than the forecasted level then we could see the dollars value increase again tomorrow, so don't be surprised if rates drop below $1.58.
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