Market Overview

Euro Lower On Stimulus Speculation

Euro Lower On Stimulus Speculation
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The euro began the week on a low note, trading at $1.2259 at 7:45 GMT on Monday morning due to crumbling confidence in the region’s economy and speculation that the European Central Bank is preparing to ease further in the coming year. The common currency has lost around 11 percent since the beginning of 2014, and most are expecting it to remain low through the end of the year.

Though the ECB has been cautious about its stimulus spending this year, most are expecting the bank to roll out a wide scale bond buying program similar to those seen in the US and Japan next year in order to combat the region’s falling inflation and deteriorating economy. However, the bank’s governing council has been divided about buying sovereign bonds, with some members claiming that more stimulus will be useless without further structural reforms in struggling countries.

On Saturday, Reuters reported that Governing Council member Luc Coene told a newspaper that the ECB should start buying government bonds despite the concerns of his peers. Coene said that the bank could improve both investor confidence and the bloc’s declining inflation rates by expanding its quantitative easing program to include government debt.

Shortly before Coene’s comments, ECB Vice President Vitor Constancio told reporters that the bank would evaluate the effectiveness of previous stimulus programs early next year in order to make an informed decision about how to proceed.  Constancio also suggested that the bank could use unconventional means to ease further next year if inflation continued to drop.

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