Right now EURO is strengthening instead of weakening on the announcement of the negative deposit rate by ECB President Mario Draghi. Did you read the post on how banks are finding it difficult to understand ECB Grand Plan? However analysts are saying EURO will weaken as ECB moves towards QE. Quantitative Easing (QE) is a technical term. In simple terms quantitative easing just means printing more money and flooding the market with cheap money. The purpose is to increase liquidity in the market. Quantitative Easing is a technical term. How does a central bank do QE? Does it print money? How does a central bank increase/decrease the money supply in the economy. These are important questions that can confuse you. Watch the video below that explains what is Quantitative Easing also know as QE in short!
After watching the above video you should have a fair idea of how this QE thing works. A few months back European Central Bank announced that it will continue with QE till December 2017. This drove EURUSD more than 500 pips down. It is ECB policy to keep EURO weak. But there are limits to ECB policy. When ECB set the interest rates negative for the first time EURUSD jumped up surprising everyone. Did you read the post on the limits of ECB policy? Sometimes the policy fails and produces the exact opposite results. So ECB should be careful with its QE policy. Does this policy of QE helps the European economy? Watch the video below that explains the risk and rewards of QE!
Above video gives you a rough idea of what are the risk and rewards of QE for the European economy. Will this policy work? Nobody knows but there are some serious misgiving. Some analysts believe this policy of QE will be counter productive in the long run. You should take a course in macroeconomics if you want to understand what this QE is and how monetary policy affects the economy in the short term and the long term. Today we are living in a global economy. What happens in US and Europe effects other parts of the globe. In the same way what happens in the rest of the world affects US and Europe. Money easily flows from one part of the world to the other. Read this post that explains how ECB policy is benefiting the Aussie Dollar. Watch the video below that analyzes this policy of QE and review QE policy in early part of 2016.