European manufacturers getting more positive amid lower euro

LONDON (AP) — Enjoying the bonus offered by the much lower euro, manufacturers across much of the 19-country eurozone are hiring again. Greece’s manufacturers though don’t appear to be enjoying the fruits offered by a lower currency amid worries over the country’s economic future.

In a closely monitored survey, financial information company Markit said Wednesday the region’s manufacturers raised employment levels in March at the fastest rate for over three-and-a-half years.

The reason appears clear enough — the sharp fall in the value of the euro currency over the past few months has made exports emanating from the region much more competitive. That’s evident in Markit’s survey, which found incoming new business at its highest level since last April.

As a result, Markit’s purchasing managers’ index — a broad gauge of business activity — for the eurozone’s manufacturing sector rose to 52.2 in March from 51.0 the previous month. Anything above 50 indicates expansion.

The so-called PMI now stands at a 10-month high, the latest in a string of indicators to point to a step-change in the eurozone’s economic recovery.

Markit found growth accelerated across the eurozone, not just Germany, where car makers such as Daimler are already benefiting. Spain and Italy, two countries at the forefront of the region’s debt crisis over the past few years, were highlighted.

“Producers are benefiting from the weaker euro, which has had the dual effect of boosting competitiveness in export markets as well as making competing imports more expensive in the home markets,” said Chris Williamson, Markit’s chief economist.

“The fact that manufacturers are boosting their payroll numbers at the fastest rate for three-and-a-half years indicates optimism that the upturn will be sustained in coming months,” he added.

In recent months, the euro has notched up one milestone after another as it dropped against major currencies. Last month, it hit a 12-year low against the dollar around the $ 1.05 mark. It’s now trading a little higher than that at $ 1.0750.

The fall in Europe’s single currency has been dramatic — as recently as May, it was trading just shy of $ 1.40 and many firms across Europe openly fretted about the impact on their exports.

One country seemingly not benefiting from the falling euro has been Greece, whose economy has been hobbled by the ongoing uncertainty surrounding the country’s bailout.

Discussions between the new Greek government and the country’s creditors over an economic reform plan have dragged. An agreement between the two is needed if Greece is going to get its hands on the next batch of bailout cash — more than 7 billion euros — that it needs to avoid going bankrupt and potentially exiting the euro. And even if an agreement is reached, Greece will still most likely need financial assistance beyond the summer.

That uncertainty has unsurprisingly prompted a cautious approach among those looking to do business with Greek firms. Markit found the Greek manufacturing sector contracting for the third month running in March mainly linked to a further reduction in incoming new work in the sector, in particular from abroad.

“One major concern is the trend in exports, which up until fairly recently had been acting as a support to the sector but are now an area of weakness as uncertainty deters foreign clients,” said Phil Smith, an economist at Markit.

As a result, he said manufacturers are scaling back production, meaning the sector is dragging down the wider economic recovery, which took root last year after a brutal six-year recession saw Greek economic output shrink by a quarter and unemployment and poverty levels swell alarmingly.

Many economists expect Greece to be officially back in recession when first quarter numbers are published next month.

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Surprise! Euro stages comeback vs. U.S. dollar

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Euro short sellers running for cover

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Surprise! Euro shows signs of life vs. U.S. dollar

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

View this article on CNNMoney

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Weaker euro works in ECB's favour, but for how long?

Frankfurt (AFP) – The weaker euro, which could approach parity with the US dollar, is making the European Central Bank’s task of kickstarting the eurozone economy easier.

But the feel-good effects could turn sour if the euro’s decline in value becomes too pronounced too quickly, analysts said.

Officially, the ECB has no exchange rate target. But by making eurozone goods cheaper to export and pushing up prices of imports, the weaker euro is positive for the single currency area’s economy.

“In the current context, pushing down the euro is probably the only means the ECB has for pushing up inflation,” Natixis economist Sylvain Broyer told AFP.

The ECB has rolled out a series of unprecedented measures in recent years to try to prevent the euro area from slipping into deflation, a dangerous downward spiral of falling prices that is difficult to break once it has set in.

But the euro has fallen by nearly 20 percent against the dollar in the past six months and central banks start to feel uncomfortable when changes in the exchange rate are too rapid and too volatile.

For the moment, the ECB does not appear to be alarmed.

President Mario Draghi recently estimated that the euro’s decline should contribute “significantly” in bringing area-wide inflation back up towards the ECB’s target of just below 2.0 percent.

In February, consumer prices in the 19-country bloc fell by 0.3 percent.

But in a scenario drawn up by the ECB’s team of economists, an excessively weak euro could push eurozone inflation back above the 2.0-percent target by 2017. Such a scenario is all the more realistic because it was calculated using an exchange rate of $ 1.04 per euro.

– Caught off guard –

The extent of the euro’s recent decline appears to have caught the ECB off guard: its most recent official forecasts were compiled using an average exchange rate of $ 1.14 this year and $ 1.13 in 2016 and 2017.

Nevertheless, the euro could fall even further against the dollar as a result of the ECB’s policy of quantitative easing, or widescale bond purchases, said Commerzbank economist Joerg Kraemer.

At the beginning of this month, the ECB embarked on a massive 1.14-trillion-euro bond purchase programme, at a rate of 60 billion euros per month until September 2016. The idea is to pump liquidity into the financial system.

“The debt purchase programme is essentially a programme of currency devaluation,” said Kraemer.

By purchasing eurozone sovereign bonds en masse, the securities become less attractive for investors in other regions, who divert their money to other countries, driving down the euro.

The mere speculation that such a QE programme might be in the offing set the euro on its downward path as long ago as last summer.

– Credibility at stake –

Nevertheless, “it’s important for the ECB to preserve its currency’s credibility” in the eyes of investors, said Broyer at Natixis.

With QE only having just started, it is premature to start talking about when the programme might begin to be phased out again, said one central bank official, speaking on condition of anonymity.

But internal debate within the ECB’s governing council could become fierce in the future, especially as the most recent economic indicators suggest that recovery is already beginning to regain momentum.

Powerful ECB governors, such as the head of the German central bank or Bundesbank, Jens Weidmann, view the QE programme as unnecessary or even dangerous.

“If at the start of next year, growth is on track and inflation is rising again, the ECB’s biggest difficulty will be to resist pressure for an early end to QE or a scaling down of the bond purchases,” said Gilles Moec of Bank of America-Merrill Lynch.

The Euro's Going Down. If It Doesn't Go Up.

The euro will be at $ 0.80 by the end of 2017, losing a quarter of its value from current levels and setting new lows, say Goldman Sachs analysts.

No it won’t. The euro will appreciate around 15% to $ 1.20 over the same period, say HSBC’s economists.

These forecasts may be at opposite extremes of the current consensus, which is broadly for more euro weakness from $ 1.06 where it trades now. But they’re both built on solid arguments. Which to believe depends on what your outlook is for how the global economy shapes up.

The Goldman Sachs view is based on expectations that U.S. monetary policy will start to normalize, which is to say the Federal Reserve will at long last raise its key interest rate from the current near-zero levels as the U.S. economy recovers. At the same time that the Fed tightens, the European Central Bank is keeping monetary policy on full throttle. This will cause investors to shift cash from eurozone assets and across the Atlantic.

And though everyone is talking about the strong dollar, the currency is actually “underpositioned,” according to a recent Goldman note, which is to say the money flows haven’t kept pace with the prevalent views.

What’s more, a eurozone recovery won’t initially be good news for the currency, according to the note. Economic strength will see a pickup in domestic demand, which will weaken the region’s current account position and thus tend to push the currency downward.

That doesn’t mean an 80 cent euro is fair value. But history has shown that foreign exchange markets are more volatile than simple models suggest they ought to be. Economists argue that’s because financial markets move faster than the real economy–prices of goods and trade flows–which leads currencies to fall well below their fair value until assets priced in that currency show compelling value.

Indeed, the Goldman analysts estimate the euro’s fair value to be around $ 1.20.

Which, intriguingly, is where the HSBC economists put the euro-dollar exchange rate in around two-and-a-half years’ time.

Their argument is that the dollar’s gains have gone far enough. Excluding monster dollar rallies of the early 1980s and another one in the run up to the end of the millennium, the current surge is substantially bigger than the usual run-of-the-mill dollar surge, having gained a quarter in value since last summer. As a result, HSBC figures the dollar is now one of the world’s most overvalued currencies, second only to the Swiss franc.

The markets have priced in divergent monetary policy paths on the two sides of the Atlantic. The result is that dollar bullishness has become the consensus trade.

But now the strong dollar seems to be taking a bite out of the U.S. economy while the eurozone has been picking up. Whereas U.S. data have consistently surprised on the downside during the past six months or so, Europe’s have surprised on the up.

The Fed has been taking an increasing interest in the dollar’s appreciation. Although the U.S. is a relatively closed econom — so the exchange rate tends to have less impact on domestic fundamentals than it does in, say, the U.K. — the strong dollar has started to eat into the earnings of the U.S.’s multinationals. So far, this hasn’t registered in the jobs numbers. But employment is a lagging indicator and is one of the few points of recent strength in the U.S. economy.

Meanwhile, the rising dollar has put downward pressure on commodity prices, which, in turn, has pushed U.S. inflation down as well. All of which suggests Fed policy will remain accommodative for longer than the consensus expects. And what’s bearish for the dollar will be bullish for the euro. That’s not to say the euro might not weaken further over the near term. But the turning point is near, according to the HSBC analysts.

Who’s right? Foreign exchange markets are notoriously difficult to call. But both euro bulls and bears have strong arguments to fall back on.

BUZZ-The UK stocks exposed to a weaker euro

** Big swing in euro exchange rate puts spotlight on UK companies with significant customer bases in the eurozone

** EURGBP approaching 0.70, fall of 9.2 pct YTD has already outstripped 6.6 pct fall in 2014

** Several FTSE 100 stocks derive more than 50 pct revenues in euros

** Imperial Tobacco (LSE: IMT.L – news) highest EUR exposure in the index at c. 71 pct

** Majority of debt denominated in euros and benefits from stronger macro background in the eurozone, but profits hurt by a stronger euro

** Said in its FY2014 results a 10 pct depreciation in the euro would hit income by £307 mln, knocking £1.1 bln off co’s share price. Chart: http://link.reuters.com/qan34w

** Stock down 6 pct in last three trading days but still up 10 pct YTD

** Other stocks with majority of revenues from eurozone: 3i (c. 67 pct continental Europe), Vodafone (56 pct), Easyjet (52 pct)

** Travel and real estate cos also among most exposed to eurozone on FTSE 250 and Small Cap indices

** Thomas Cook (Xetra: A0MR3W – news) , Flybe, Hansteen among others that derive majority of revenues from the eurozone (RM (LSE: RM.L – news) : [email protected])

The euro's tumbling _ here's why

LONDON (AP) — The euro is notching one milestone after another as it drops against major currencies. On Wednesday, it hit a 12-year low against the dollar and many think its descent has further to go.

The fall in Europe’s single currency has been dramatic — 25 percent since May, when it traded just shy of $ 1.40. Back then, companies across Europe openly fretted about the strength of the euro and its impact on their exports.

Such concerns are now more likely to be heard out of the U.S. or Britain, which are seeing their currencies rebound against the euro. On Wednesday, the euro fell as low as $ 1.0557, its weakest against the dollar since April 2003.

So what’s prompted the euro’s plunge?

___

EURO EXCESS

The main reason is the European Central Bank has not only cut interest rates but also started creating more euros to put into the financial system.

The ECB had been reluctant to do so for years, but in 2014 it changed course. As policymakers faced the prospect of minimal growth and falling prices, which can further weigh on an economy, it cut its main interest rate in September to 0.05 percent. The move hit the euro by reducing the potential returns on investments in the eurozone.

As that proved insufficient to turn the eurozone around, the ECB has started buying government bonds in the markets with newly-created money. The hope is that the 18-month 1.1 trillion-euro ($ 1.12 trillion) monetary stimulus will shore up the economic recovery and get inflation back into the system.

Whether or not the stimulus works, it will increase the number of euros in circulation, diluting their value.

The stimulus should also keep a lid on the borrowing rates of most eurozone countries in the markets — the ECB’s buying shores up the value of the bonds, thereby reducing the potential yield on those bonds. With the yields on European government bonds at historic lows and in some cases negative, the returns to investors are negligible at best, further weighing on the euro.

___

FED FACTOR

The euro has fallen against many currencies, but its drop has been particularly pronounced against the dollar.

That’s because while the ECB’s policies have been weakening the euro, the U.S. Federal Reserve’s are bolstering the dollar.

As the American economy keeps growing and creating jobs, the Fed ended its own bond-buying stimulus program and says it is ready to soon start raising interest rates. Last week’s stronger-than-expected jobs figures for February ratcheted up expectations that the first rate increase will take place in June.

For those looking for higher returns, holding U.S. assets has become a more enticing prospect. Just look at the returns available on holding the 10-year U.S. Treasury — the yield stands at 2.14 percent against 0.18 percent for Germany’s.

The dollar has been rising not only against the euro but a range of currencies. Against the Japanese currency, it was near 122 yen, the highest since 2007.

___

GREECE LIGHTNING

Concerns over a Greek exit from the euro have been an additional burden on the euro over the past few months.

The rise of a radical new government in Athens that wants to renegotiate a large part of the country’s bailout terms has raised the prospect of a “Grexit.”

Those tensions are likely to linger as Greece and the eurozone creditors will be stuck for weeks, if not months, on how to lighten the country’s rescue loans.

___

STUNTED GROWTH

Many eurozone economies still have trouble growing, and that has discouraged some investors from putting their money in the currency bloc.

Relatively small economies like Portugal and Ireland are just emerging from bailout programs that required them to make huge budget cuts. Big economies like Italy, Spain and France are still focusing on reducing debt rather than spending.

At the very least, the economic outlook for the eurozone isn’t rosy, and that’s likely to require lower interest rates from the ECB than the Fed, for example, and that prospect has been another reason hurting the euro.

The euro: Good bet or fool's paradise?

Today the pound hit a seven-year high against the euro. Or perhaps another, more accurate, way of thinking about that is that the euro hit a seven-year low against the pound. Against the US dollar, the euro is trading an eleven-year low.

Increasingly, analysts are predicting that this trend will continue and the euro-dollar exchange rate will hit “parity” ($ 1 = €1) in the coming months for the first time since 2002.

With the eurozone still being Britain’s single largest trading partner, the exchange rate matters. A weaker euro makes UK exports to the single currency area more pricey and lowers the costs of imports from across the Channel.

To understand if this trend towards a weaker euro will continue, we need to work out what is driving it. But first it’s important to remember that in many ways forecasting exchange rates with any accuracy is a bit of mug’s game. So with that caveat out of the way, this is what looks to be happening.

Some of the weakness in the euro reflects renewed fears about a Greek exit from the single currency. That may be more manageable than in 2012 but the outcome would still lead to disruption and fundamental questions about the euro’s future.

But there’s a more fundamental factor at work – monetary policy is diverging.

At the moment, the next move from the Bank of England and the US Federal Reserve is expected to be raising interest rates. Meanwhile the European Central Bank (ECB) has just begun a programme of quantitative easing (QE) – electronically creating money to buy-up government debt in the eurozone.

It’s this divergence, between monetary tightening in the US and the UK, and easing in the eurozone, which is driving the euro lower.

Start Quote

It may not be long before the question starts to change – rather than it being “has the ECB committed to too little QE?”, it could become “has the ECB committed to too much QE?”.”

End Quote

To understand why, we need to look at the yields (the interest rate paid) on government debt. Today a two-year US government bond yields 0.7% and two-year UK government bond yields 0.6%. By contrast, a two-year German government bond has a yield of -0.2%.

In other words, an investor who buys a two-year German government bond today and holds it to maturity, will lose 0.2% a year. The price of the bond – which moves inversely to the yield (as prices rise the interest rate comes down and vice versa) – is so high, that loss is almost guaranteed.

Given these sort of rates, it’s no surprise that those who can choose where to hold their money, are finding the pound and the dollar more attractive than the euro.

Over a third of all government debt in the eurozone is now trading with a negative yield. That, it must be said, is an unusual state of affairs.

There are couple of possible reasons why investors might choose to buy government debt with a negative return. It could be that they fear losing money elsewhere and so would rather park their cash in a safe haven that will suffer a small loss, rather than risk losing more elsewhere.

But inflows of money into riskier European assets like stocks are on the rise, which does not suggest a high level of fear.

So we are left with the other explanation, which is, investors hope to sell on their pricey government debt to someone else for a higher price than they paid. This is what can be thought of as the “greater fool theory” of investing. It might be foolish to buy something that looks overvalued but, as long as a bigger “fool” can be found to buy it for more later, then a profit can be made.

At the moment, the European Central Bank – by pledging to buy €60bn (£43bn) of government bonds a month until September next year – is the “fool” of choice. Why not buy a German 10-year bond at a yield of 0.1% if you think you’ll be able to sell it to the ECB for more later? And as long as that is the case, the euro should continue to weaken.

Of course, the ECB is not necessarily being “foolish”. The purpose of QE, from its point of view, is not to make money in the bond markets but to boost the European economy.

There are two factors, though, that could change this state of affairs.

It may be that a stronger pound and stronger dollar – which could crimp exports and lower inflation through reducing import costs – force the Federal Reserve and the Bank of England to think again on rate rises.

This would make the divergence in monetary policy less extreme and make the euro more attractive to hold.

Or – and this is not yet the central forecast of many – it may be the ECB thinks again on QE.

Just six weeks ago when the programme was introduced, one of the most common responses was to ask: “Is €60bn a month until September 2016 really enough?” The assumption of many was that the eurozone economy was in such a deep hole that more QE would be required.

But the eurozone economy is now showing signs of recovery. Even in the past few weeks, the outlook has brightened. It may not be long before the question starts to change. Rather than it being “has the ECB committed to too little QE?”, it could become “has the ECB committed to too much QE?”.

In other words, if the eurozone economy shows further signs of firming, the markets may start to question quite how committed the European Central Bank really is to QE.

At that point, the present bout of euro weakness – and some of those rather odd negative interest rates – could reverse. Those who had bought eurozone government bonds hoping to sell them on to a greater fool, would look rather foolish.