Greek pledge and cautious Fed soothe investors

By John Geddie

LONDON (Reuters) – The euro headed for its best week in more than two years on Friday while yields on low-rated bonds fell as investors welcomed the Fed’s caution on rate hikes and a reform pledge from Athens that could avert a cash crunch.

Illustrating the problems low inflation is causing for central banks looking to normalise monetary policy in countries such as the United States and Britain, oil was set to rack up its third consecutive weekly price slump. [O/R]

Futures showed Wall Street set to open 0.3 percent higher, with stocks on course for their best week in a month, as a Fed-induced weakening of the dollar gave a boost to U.S. exporters.

European shares edged up while euro zone bond yields fell after assurances from Athens that it will submit reforms needed to unlock bailout cash. The ECB’s trillion euro asset purchase scheme was also in focus at the end of its second week.

“The outlook for European markets is better than it has been for years, and the risks now are largely political,” said Christian Schultz, senior economist at Berenberg.

Greek bond yields dropped 45 basis points to 12.10 percent, while Portuguese, Spanish and Italian equivalents were all down around 1-2 bps. German bonds — the euro zone benchmark — were flat at 0.19 percent, just above a record low.

The euro was 0.5 percent higher against the dollar at $ 1.0712 , well below Wednesday’s high above $ 1.10 but leaving the single currency on track for its best week since January 2013.

“What’s been dominating the euro over the course of the last week has been the moves in the dollar. The FOMC announcement was, on margin, more dovish than expected,” said Phyllis Papadavid, senior global FX strategist at BNP Paribas in London.

The pan-European FTSEurofirst 300 share index was up 0.3 percent at 1.601.42 points, having hit a new 7-1/2 year high just after markets opened.

The impetus gained from Wednesday’s dovish statement from the U.S. Federal Reserve has begun to ease, but European indices were supported by gains in the construction sector after Holcim and Lafarge agreed to new merger terms.

Asian stocks were broadly unchanged, with MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> up 0.05 percent after rallying 1.3 percent the previous day. It was on course for a gain of over 2 percent for the week.

The region’s decliners included shares in Hong Kong, Malaysia, South Korea and Thailand. Australian and Chinese stocks were among the gainers in a choppy session.

The dollar index was down 0.5 percent at 98.72 <.DXY> but still well above a low of 96.628 plumbed midweek. The index was on track for slight loss on the week after touching a 12-year high above 100.00 on March 13.

The dollar saw its biggest fall in six years against the euro on Wednesday, after the Fed’s dovish statement.

In commodities, Brent crude oil was down 1.3 percent at $ 53.69 a barrel , hurt by oversupply worries after Kuwait said OPEC had no choice but to maintain output levels.

U.S. crude was down around 0.5 percent, just above the six-year low of $ 42.03 a barrel hit earlier in the week.

(Editing by Catherine Evans)

FOREX-Dovish Fed hands euro best weekly gains in 18 months

* Market consensus has all but ruled out June hike to U.S. rates

* Euro on track for best weekly performance since Sept 2013

* BNP Paribas revises down euro/dollar forecasts

By Jemima Kelly

LONDON, March 20 (Reuters) – The euro inched up against the dollar on Friday and was on track for its best weekly performance in 18 months, boosted by a sell-off in the greenback after the U.S. Federal sounded a cautious tone on interest rates.

The greenback plunged across the board on Wednesday after the Fed downgraded its economic growth and inflation projections, signalling it is in no rush to push borrowing costs to more normal levels and pouring cold water on investor expectations of a June rate hike.

Having dived to as low as 96.628 against a basket of major currencies in the wake of the Fed, the dollar was trading at 98.952 on Friday, down 0.1 percent on the day on track for its first week of falls in five.

The euro was 0.2 percent higher against the dollar at $ 1.0683, well below Wednesday’s high above $ 1.10 but still leaving the single currency on track for its best weekly performance since September 2013 with a 1.7 percent rise.

“The FOMC announcement was, on margin, more dovish than expected. So the weakness that we saw in the dollar in the aftermath of that translated into some rebounds in euro/dollar,” said Phyllis Papadavid, senior global FX strategist at BNP Paribas in London.

Papadavid said she expected the euro downtrend to resume, and BNP Paribas yesterday revised down their euro forecasts to parity with the dollar by the end of this year from $ 1.05 previously and to $ 0.95 by the second quarter of 2016.

But an overwhelming consensus among major banks that the euro will continue to fall against the dollar found a doubter on Thursday. In contrast to a slew of downward euro revisions, British bank HSBC on Thurday revised up its forecast for the single currency to $ 1.20 by 2017.

Against the yen, the dollar was 0.1 percent higher at 120.88 yen, comfortably above its Wednesday post-Fed low of 119.29.

“Pressure will remain on the yen as before. Today, there is a shortage of fresh trading incentives, so the yen has come back a bit,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

The Bank of Japan stood pat on policy earlier this week, as it has every month since expanding its massive stimulus programme in October last year.

(Additional reporting by Lisa Twaronite in Tokyo; Editing by Toby Chopra)

Euro gains vs dollar as traders eye Fed for interest rate clues

imageLONDON: The euro rose for a second day against the dollar on Tuesday as investors awaited the start of a two-day US Federal Reserve policy meeting that will test expectations of a mid-2015 rise in US interest rates.

The single currency had come under pressure after the European Central Bank began a bond-buying programme last week that will pump more than one trillion euros of newly created money into the euro zone economy.

But the euro won some relief on Monday after weaker-than-expected US manufacturing, industrial output and housing data pushed down US debt yields and cooled the dollar’s advance.

The US currency’s surge since early March has been driven by solidifying expectations that the Fed’s Open Market Committee (FOMC) will point towards a June rate rise by dropping a pledge to be “patient”.

The dollar has gained around 20 percent against a basket of major currencies over the past six months and some investors speculate that the Fed cannot ignore how much that rise reduces pressure on inflation.

Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London, reckoned the removal of the word “patient” was “pretty much a done deal”, but that investors were nevertheless eager to take risk off their books ahead of the Fed meeting.

“There are so many other angles that (Fed Chair Janet) Yellen could go at to paint a picture of caution and the potential for the first move to be beyond June,” he said.

“If you’ve been short euro over the past week, you’ve had a good week, and why would you bother running the risk into what is a difficult event to predict?” Having hit a 12-year low of $ 1.0457 at the start of the week, the euro was up 0.2 percent at $ 1.0589 on Tuesday morning. The dollar was around 0.1 percent lower against a basket of major currencies.

Traders will also keep an eye on how other asset markets react to the Fed’s statement and comments from Yellen after the meeting.

“The main point is how Treasury yields respond to the Fed. Despite the removal of “patience”, prospects of a September, rather than June, rate hike may linger, given the dollar’s appreciation and lower oil prices,” said a currency trader at a large Japanese bank.

The dollar inched up 0.1 percent to 121.42 yen, stuck in a relatively narrow range since advancing to an eight-year high of 122.04 on March 10.

The Bank of Japan concluded its two-day policy meeting on Tuesday, at which the central bank stood pat on monetary policy and maintained its massive stimulus. Market reaction was limited because the outcome was as expected.

Copyright Reuters, 2015

FOREX-Euro gains vs dollar as traders eye Fed for interest rate clues

* Euro gains against dollar for second straight day

* Traders taking risk off table ahead of Fed policy meeting

* BOJ stands pat on policy as expected, market reaction limited

By Jemima Kelly

LONDON, March 17 (Reuters) – The euro rose for a second day against the dollar on Tuesday as investors awaited the start of a two-day U.S. Federal Reserve policy meeting that will test expectations of a mid-2015 rise in U.S. interest rates.

The single currency had come under pressure after the European Central Bank began a bond-buying programme last week that will pump more than one trillion euros of newly created money into the euro zone economy.

But the euro won some relief on Monday after weaker-than-expected U.S. manufacturing, industrial output and housing data pushed down U.S. debt yields and cooled the dollar’s advance.

The U.S. currency’s surge since early March has been driven by solidifying expectations that the Fed’s Open Market Committee (FOMC) will point towards a June rate rise by dropping a pledge to be “patient”.

The dollar has gained around 20 percent against a basket of major currencies over the past six months and some investors speculate that the Fed cannot ignore how much that rise reduces pressure on inflation.

Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London, reckoned the removal of the word “patient” was “pretty much a done deal”, but that investors were nevertheless eager to take risk off their books ahead of the Fed meeting.

“There are so many other angles that (Fed Chair Janet) Yellen could go at to paint a picture of caution and the potential for the first move to be beyond June,” he said.

“If you’ve been short euro over the past week, you’ve had a good week, and why would you bother running the risk into what is a difficult event to predict?”

Having hit a 12-year low of $ 1.0457 at the start of the week, the euro was up 0.2 percent at $ 1.0589 on Tuesday morning. The dollar was around 0.1 percent lower against a basket of major currencies.

Traders will also keep an eye on how other asset markets react to the Fed’s statement and comments from Yellen after the meeting.

“The main point is how Treasury yields respond to the Fed. Despite the removal of “patience”, prospects of a September, rather than June, rate hike may linger, given the dollar’s appreciation and lower oil prices,” said a currency trader at a large Japanese bank.

The dollar inched up 0.1 percent to 121.42 yen, stuck in a relatively narrow range since advancing to an eight-year high of 122.04 on March 10.

The Bank of Japan concluded its two-day policy meeting on Tuesday, at which the central bank stood pat on monetary policy and maintained its massive stimulus. Market reaction was limited because the outcome was as expected.

(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Gareth Jones)

Another week, another euro fall

The plunge in the euro may be starting to look overstretched, but that’s unlikely to stop traders from pushing the battered single currency even lower this week, analysts warned.

The euro briefly fell to a fresh 12-year low against the dollar Monday, at about $ 1.0457, before recovering a touch. Last week, the currency slid 3.2 percent — its biggest weekly fall since 2011 — as the European Central Bank embarked on a 1-trillion-euro quantitative easing program and talk of a rate rise by the U.S. Federal Reserve this year grew.

“The euro continues to track lower and while it continues to struggle above the $ 1.0600 level, the prospect of a move to parity remains very much a possibility,” Michael Hewson, chief market analyst at CMC Markets, said in a note.

“The move lower continues to get more and more overextended, yet new lows continue to be hit every day.”

Read More Weak euro, ECB stimulus make Europe a solid bet: Wisdom Tree

Another week, another euro drubbing

The plunge in the euro may be starting to look overstretched, but that’s unlikely to stop traders from pushing the battered single currency even lower this week, analysts warned.

The euro (Unknown: EURBA=) briefly fell to a fresh 12-year low against the dollar Monday, at about $ 1.0457, before recovering a touch. Last week, the currency slid 3.2 percent — its biggest weekly fall since 2011 — as the European Central Bank embarked on a 1-trillion-euro quantitative easing program and talk of a rate rise by the U.S. Federal Reserve this year grew.

“The euro continues to track lower and while it continues to struggle above the $ 1.0600 level, the prospect of a move to parity remains very much a possibility,” Michael Hewson, chief market analyst at CMC Markets, said in a note.

“The move lower continues to get more and more overextended, yet new lows continue to be hit every day.”

Read More Weak euro, ECB stimulus make Europe a solid bet: Wisdom Tree

Market positioning data from the Commodity Futures Trading Commission on Friday showed that long dollar (New York Board of Trade (Futures): =USD) bets, which reflect the view that the greenback will strengthen, rose to their highest level in four weeks in the week ended March 10.

The value of the dollar’s net long position was $ 44.31 billion that week, compared with $ 40.85 billion the week before. It marked the eleventh straight week that long positions on the greenback have been in the $ 40-billion region.

Michael Every, head of financial markets research for Asia-Pacific at Rabobank, told CNBC Asia’s “Squawk Box” that the euro could hit parity, or one-to-one against the dollar, within a matter of trading sessions.

“We’ve seen an incredible swing towards the dollar and away from the euro, and if we do get the removal of the word ‘patience’ from the Fed on Wednesday and weak euro zone data we could get there (parity) in a week,” he said.

Read More It’s all about the Fed, but watch for these flareups

Every was referring to this week’s Federal Reserve meeting and speculation that the central bank could remove the word “patience” from its guidance about the pace at which it will normalize monetary policy. If it does, it could signify that rates could rise this year.

Saktiandi Supaat, head of global FX strategy at Maybank, told CNBC that the euro could test resistance levels of $ 1.02 over the next week, which would imply a further loss of 3 percent from current levels. The euro has tumbled almost 25 percent over the past year.

Some analysts said that even if the Fed does not use the word “patience” this week, it could still signal that a rate rise as early as June may not be on the cards – something that could knock the resurgent dollar and give the euro a lift.

“The euro is oversold at these levels and this is a good week for a bounce. I think the Fed will be cautious and temper expectations for a rate rise in June,” Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, told CNBC Europe.

“The Fed is the only major central bank looking to tighten and it is hard to do that when most central banks are still easing,” he added. “I think the markets are getting a bit ahead of themselves in terms of dollar strength.”

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Positive signs continue for sterling pound

A positive end to the week saw sterling further its gains against both the euro and US dollar, as a member of the US Federal Reserve’s monetary policy committee spoke out about the dangers of a premature increase in US interest rate.
The week ahead could be an important one for sterling, with a host of data released from the UK, including Purchasing Managers Index (PMI) data from a number of industries.
This will be closely followed on Tuesday by the PMI for the construction industry, which has shown significant expansion over the past year. PMI data for the services sector on Wednesday will be eagerly awaited, with this sector contributing to around 70 percent of UK industry.
Following this we will see the release of the latest interest rate decision from the Bank of England. Following recent comments from BoE Gov. Mark Carney, it is highly unlikely we will see a rate change, resulting in something of a non-event here.

The euro
The euro had a mixed day on Friday, as official data earlier showed that French consumer spending rose 0.6 percent last month, significantly beating expectations for a 0.5 percent fall. December’s figure has also been revised up to a 1.6 percent increase. Yet the single currency lost ground again on Friday.
The euro zone data flow is high this week. Just like the UK they will be releasing the Purchasing Managers Indices for all sectors and all countries during the course of the week.
The European Central Bank (ECB) is also holding its monthly meeting. There is expected to be no change in the euro zone interest rate but they will be issuing an updated economic forecast on growth.
Expectations are for a positive upgrade — it should be noted that Germany and Spain recorded greater growth rates than the UK for the final quarter of 2014 — so we may see some support for the euro. It also has to remembered that the ECB have been keen for euro weakness to boost activity and exports and this does seem to be happening.

US economy
Friday was a positive day overall for the US, who saw their economy grow by 2.2 percent, making it the fastest growing economy in the developed world. Another welcome development came in the form of positive consumer confidence. However the US dollar was undermined towards the end of the day as a Federal Reserve Member cautioned against US interest rates being increased too quickly.
Another busy week is in store for the US, starting with the Purchasing Manager Indices (PMI) for Manufacturing coming out on Monday, as well as personal income and spending. Federal Reserve Chair Yellen has described these data releases as a possible threshold that she wants to see increase before raising interest rates.
Yellen is actually due to speak mid-week — she may vote for an interest rate hike, with a few Federal Reserve members already suggesting June as the possible month for the start of a rate hike. Non-Manufacturing PMI is out also due, and expected to show continued growth, along with an indicator for employment change.
Thursday will see another indicator for unemployment claims data for the US, leading up to the all-important Non-Farm Employment change data released on Friday.
Federal Reserve member Williams also speaks on Thursday, shining the spotlight on another member predicting when the start of an Interest rate hike may take place.
Friday is likely to be the most volatile day for the US dollar with the non-farm employment change due, which has shown steady positive growth in the employment market. Average Earnings data is also out, a key figure that the Federal Reserve want to keep an eye on, along with the trade balance figures and unemployment rate following from the Employment change release.
The fortunes of the US dollar are moving up and down in these uncertain times. If you are looking to buy or sell US dollars, we suggest contacting your trader now for the latest rates, economic and market news and currency buying strategies.

Japanese yen
The Japanese yen had a poor finish to the week, dropping against the US dollar at the end of the week. Official data showed that Japan’s household spending fell 0.3 percent last month, compared to expectations for a 0.4 percent rise. This followed a 0.4 percent increase in December. This was not the only piece of poor news for Japan on Friday, as a separate report showed Japan’s retail sales declined at an annualised rate of 2 percent, much worse than experts’ expectations.

Canadian dollar
Friday saw the Canadian dollar jump, as demand for its US counterpart dropped, shrugging off data that showed a consumer price fall last month, despite the initial higher expectations.

Charles Purdy is director of Smart Currency Exchange, London.

More on the Euro-Dollar Exchange Rate

Nineteen countries now use the Euro as their currency. Fifty states use the Dollar as their currency. While that comparison is correct, it is a bit misleading for various reasons.

U.S. states are more homogeneous than Euro-zone countries. Our states share a national government, including fiscal policy. We speak a common language, sort of. We’ve been economically integrated much longer, including free interstate trade since Constitutional times. We’ve had freedom of movement much longer, and so on.

Because of the scope of 50 states most of our trade is internal rather than external; so a change in the price of the dollar relative to foreign currencies has less impact on our trade than would the price of a Texas dollar or a Colorado dollar.

Theoretically, the Euro-zone has been working toward more homogeneity so that its 19 countries are more nearly similar to our 50 states. But that experiment is only about 15 years old and it is far from complete. One implication is that the common Euro exchange rate with outside countries is likely to be more appropriate for some countries than others, as is a common monetary policy by a common central bank. Yet, a strong Germany, relatively speaking, shares these things with weaker countries like Greece, Spain, and Italy. (Where do I put France?) I could almost generalize and say that the beer drinking countries of northern Europe will likely have different circumstances and needs than the wine drinking countries of southern Europe.

The recent rapid depreciation of the Euro should be very helpful to the countries with weaker economies, but that “help” will also go to the stronger countries. The importers and exporters of each country will be impacted, for better or worse, by developments in other countries. German car companies, to the extent that they produce domestically for foreign markets will get a windfall caused, for example, by weak tourism in Greece and Italy. (I once spent 16 days in Greece and all I recall seeing were tourists.)

There is a phenomenon called the Dutch disease that originated by a development in The Netherlands that attracted foreign capital, which drove up their exchange rate, which harmed unrelated exporters and their employees. A version of Dutch disease takes place with almost all developments that affects an exchange rate shared by others.

If France still had its franc and Germany still had its mark, and so on, local developments might affect their exchange rates and small changes would have large impacts. More of each country’s trade would be foreign trade and be susceptible to correction through minor exchange rate adjustments. With a single currency, French-German trade becomes internal rather than external. Add in Italy and Spain and what is “foreign” trade shrinks further. With 19 countries sharing the Euro, it is bound to take larger movements in the currency to make a difference to a single country since the adjustment mechanism no longer works within the 19. In other words, the sharp decline in the Euro from the high $ 1.30s to almost parity with the dollar is probably more than would have been necessary for correction of a single-country currency.

This move from one to nineteen affects U.S. citizens as well, as we are getting a bad case of Dutch disease. U.S. exporters, and their employees, including multinational corporations that produce, sell and earn in many countries, are harmed by causes unrelated to them in one or more of the nineteen. We are forced into the European adjustment process and the impact on us will be larger than if Europe still had its individual currencies.

Of course, it works in both directions as the recent sharp decline in world oil prices resulted primarily from developments in Texas and North Dakota. If those two states had had their own currencies, the impact abroad, including both other states and countries, would have been milder—for good or bad.

Euro-dollar parity: It's now in Yellen's hands

The euro rose for the first time in two weeks on Thursday, trading at around $ 1.0585, and bouncing off the previous day’s 12-year lows. It has fallen fast and furious in recent weeks against a backdrop of monetary stimulus in the euro zone and expectations of monetary tightening from the Fed this year.

Fast and furious

The euro has shed 6.5 percent against the dollar in the past 30 days and even with Thursday’s rebound, the currency is down more than 4 percent over the past week.

It’s that fall that has raised expectations for a move to parity against the dollar, something that last happened in 2002.

Read MoreDollar-euro parity: What a one-to-one exchange means

And what role does the Fed play in this parity debate? Well, say analysts, if Yellen removes the key phrase “patient” from the Fed’s statement, this would be interpreted by markets as signal that a June rate hike is on the cards.

A rate rise would increase the yield differential between the dollar and the euro – pulling the single currency lower. On the other hand, if the Fed continues to express patience about the economic outlook, the dollar could give up some of its recent gains.

“If they [Fed policymakers] remove the word patience from their statement, it’s [euro/dollar] going to go to parity very quickly,” Kelvin Tay, managing director and regional chief investment officer, Southern APAC at UBS Wealth Management said on CNBC Asia’s”Street Signs.” “If you look at the momentum the U.S. dollar has going for it at the right now, it’s quite scary.”

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.