EUR/USD Languishes Near 1.16 on Increased ECB Stimulus Bets

The euro languished just above an 11-year trough on Friday as investors wagered that the Swiss move to abandon its currency cap meant it was almost certain the European Central Bank would launch large-scale bond buying next week.  The euro suffered its biggest one-day drop against the Swiss franc in history after the Swiss National Bank (SNB) stunned markets by suddenly abandoning its long-held pledge to keep the franc above 1.20 per euro.

Dealers assumed the Swiss had moved with the knowledge that the ECB would take the plunge into full scale quantitative easing at its policy meeting on Jan. 22.  “No doubt the market will be expecting big stimulatory action from the ECB next week if the Swiss fear a much weaker euro,” said David de Garis, senior economist at National Australia Bank.

“In fact, the move unleashed a spate of currency volatility, including the euro, major currency pairs whipsawing significantly.”  After falling 30 percent in a matter of minutes in wake of the SNB’s shock move to 0.8696 Swiss francs, the euro has since clawed back to 1.002 francs.

Reuters

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