Euro Lags As Investors Look To PMI Data

The euro got off to a slow start on Monday, trading at $1.3703 at 5:23 GMT.  The common currency has been feeling the pressure over the past two weeks following European Central Bank President Mario Draghi’s comment that the central bank was comfortable easing further in June.

Businessweek reported that a Bloomberg survey of 52 economists showed that 47 are expecting to see the ECB make a policy move in June.  Draghi’s commitment at May’s meeting has solidified expectations that the bank is preparing to intervene as a failure to follow through would damage Draghi’s, and the bank’s, credibility.

Now, the question on everyone’s mind is what measures the bank will take at June’s meeting. Many are expecting the ECB to cut both its key interest rate, currently at 0.25 percent, and its deposit rate, currently at zero.  If the bank does lower its deposit rate into negative territory, it will be the first large bank to do so. A negative deposit rate would effectively charge banks for holding on to excess cash; something that could be effective in encouraging banks to step up their lending to small and mid-sized firms.

Moving forward, investors will be focused on the bloc’s PMI data, set to be released throughout the week. After last week’s disappointing GDP figures, investors are waiting for fresh data to get a clearer picture of the region’s economic health.  With the bloc’s main concern being inflation, the input and output price components of the PMI readings will be closely analyzed.