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Euro Gains on the ECB’s Wariness to Expand Its QE Program

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ECB may delay increasing the stimulus program

The euro continued to gain against the US dollar for the second consecutive session on January 14, 2016. It gained due to speculations that the ECB (European Central Bank) may not increase its QE (quantitative easing) program in the near term. These reports reduced the divergence existing between the ECB and the Fed in terms of the monetary policy stance.

Even though the inflation environment has been sluggish with prices not picking up in accordance with the ECB’s target level, policymakers remained wary about increasing the stimulus program more. The ECB came out with its bond-buying program last year to the tune of 60 billion euros per month in order to infuse liquidity into the market and stimulate economic recovery.

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ECB Chief Mario Draghi disappointed markets in December by coming up with measures that were lower than expected. This provided a bounce in the value of the euro-US dollar pair. The ECB’s next monetary policy meeting is expected on January 21, 2016. The interest rates are at 0.05%. The deposit rate remains negative at -0.30%.

German GDP rose by 1.7% in 2015

German’s GDP (gross domestic product) rose by 1.7% in 2015 compared to 1.6% growth in 2014. It was slightly higher than the expected growth of 1.6%. It was the best performance in four years. It was mainly driven by increased domestic demand. Wholesale prices across Germany fell by 1.0% in December on an annual basis against a 1.1% fall in the previous month. Consumer price inflation in Finland also continued to remain negative. It fell by 0.2% on an annual basis in December—the same pace in the previous month.

Impact on the market

Looking at the performance of ETFs across the Eurozone, the iShares MSCI Eurozone ETF (EZU) was trading higher by 0.94% on January 14, 2016. Following a similar trajectory, the iShares MSCI Germany ETF (EWG) rose by 1.2% at the end of the day.

Analyzing European ADRs (American depositary receipts), German bank Deutsche Bank AG (DB) fell by 0.72%. In contrast, German major SAP AG (SAP) and Finnish company Nokia Oyj (NOK) rose by 1.6% and 1.4%, respectively.

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