Euro Below $1.25 Ahead Of ECB Meeting
The euro began the week below $1.25 with investors looking ahead to Thursday’s European Central Bank meeting, which most are expecting to yield no major policy changes. The common currency traded at $1.2495 at 7:00 GMT after the latest inflation figures fueled speculation that the bank will hold off on further stimulus.
On Friday, The Wall Street Journal reported that the eurozone’s consumer prices increased by 0.4 percent annually in October. The figure met analysts’ expectations and helped calm worries after a separate report showed that Germany’s inflation had fallen to 0.7 percent in October. However, the report was far from rosy, as the figure is still far below the bank's 2-percent target and well past the 1-percent mark that the ECB has termed the "danger zone."
Worries about low inflation were highlighted last week when the Bank of Japan surprised markets and announced further stimulus. Eurozone officials have said they have taken the necessary precautions in order to avoid a period of deflation, but many are skeptical that the region can turn around without further help from the central bank.
Most expect that the bank will eventually step in with more easing, but that November isn’t the right time to do so. For one, the ECB’s governing council members are divided about the next steps for the region. Many of the central bankers are opposed to widening the bank's covered bond buying scheme into a large-scale quantitative easing program like that seen in the United States, saying the real driver of change is reform within individual nations.
In addition to the debate over more easing, many of the bank's officials have called for more time before another stimulus package is released as they believe that the effects of the bank’s current stimulus haven’t had a chance to make an impact on the economy yet.
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