[Slide 23: Exchange rate: The fall in EUR/USD since mid-2014 reflects policy divergence] The Eurosystem’s asset purchase programme, as well as divergence in monetary policy stance, have weakened the exchange rate of euro. Firstly, the increased supply of euros relative to other currencies lowers the exchange rate.
Secondly, many institutional investors may have considered the US and UK government bonds as substitutes for bonds of high-rated euro area countries. Demand for other currencies leads to depreciation of euro. The nominal exchange rate of euro has depreciated by 8 % since January 2015. However, the purchase programme is not the only reason for the weakening euro.