Market Overview

ECB Ready To Take On Deflation Risks If Need Be

ECB Ready To Take On Deflation Risks If Need Be
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The euro traded steadily at $1.35 on Monday morning after European Central Bank Executive Board members Benoit Coeure and Joerg Asmussen both reiterated that the bank had more tools to use in its arsenal if need be.

The common currency has felt the pressure recently as official data showed that the region's inflation has fallen well below the bank's target of two percent.

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Reuters reported that Coeure said that the ECB's November rate cut was a precaution and that the bank was trying to maintain a safety margin above zero percent inflation. Eurozone inflation came in at 0.7 percent in the latest figures, prompting many to speculate that the region was headed for a Japan-like “lost decade” of deflation.

However, Coeure remarked that the ECB did not see deflation risks in the eurozone and said that the bank is prepared to take further action if need be. With the region's interest rate already at a record low 0.25 percent, the bank will likely take the deposit rate below zero if another move is required. A rate below zero would likely flood the market with euros as banks would be penalized for maintaining large cash reserves.

Moving forward, investors will be focused on inflation data from the eurozone, due out on Friday. The new figure is expected to remain at 0.7 percent or show a slight improvement to 0.8 percent. The German consumer confidence indicator, due out on Thursday, will also be closely watched as investors look to the eurozone's largest economy for signs of improved spending for 2014.

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