Why ECB Action Is Likely On The Horizon
The euro was steady at $1.2448 at 8:00 GMT on Monday morning with the European Central Bank’s Thursday meeting in focus. The common currency has been weighed down by the prospect of more easing from the bank, though its governing council may be too divided to make a move this month.
Data out on Friday showed that the bloc’s inflation was at a five-year low of 0.3 percent in November, something that will likely pressure the ECB into rolling out more stimulus. The Wall Street Journal reported that poor labor data added to growing concern about the eurozone economy’s welfare as the number of jobless people also increased by 60,000, making the region’s unemployment rate steady at 11.5 percent.
The figures could push the ECB into action this Thursday, but most are betting that the bank will hold out until at least January to make any major changes. ECB President Mario Draghi has commented on several occasions that the bank is ready and willing to ease if need be, but some of the bank’s other governing council members have been more cautious.
The Bundesbank’s Jens Weidmann has been very vocal about his concerns regarding a large scale quantitative easing program, saying that structural reforms within member countries need to be carried out before any more cash can be ejected into the financial system. While Weidmann may be right, some believe the bloc is running out of time with the inflation rate coming dangerously close to zero.
This week investors will be looking to eurozone PMI figures as well as the ECB’s revised economic forecast for a better picture of the region’s financial health as well as any clues about the bank’s plans for quantitative easing. Early on Monday, the eurozone’s manufacturing PMI game in at 50.1, a drop from December’s reading and uncomfortably close to the 50.0 mark that denotes contraction.
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