ECB May Need To Step In To Prevent Deflation
The euro traded steadily at $1.3563 at 6:45 GMT on Wednesday morning as investors cautiously watched the region for signs that the European Central Bank will intervene at its next policy meeting.
Although the eurozone has made huge strides to come out of its longest ever recession, growth in the bloc remains both sluggish and fragile.
On Tuesday, Reuters reported that the International Monetary Fund confirmed fears that the eurozone's falling inflation could potentially become a larger problem. Olivier Blanchard, the IMF's chief economist, told reporters that the fund sees a 10 to 20 percent chance that inflation in the eurozone will turn negative. Blanchard urged the ECB to step in and do everything possible to keep the bloc from falling into a period of deflation.
Weak growth and lagging demand still plague the eurozone this year, and the region's first earnings season has spotlighted those difficulties. Several eurozone companies surprised investors with warnings about sharply lower profits as uneven growth across the bloc presents a challenge. Royal Dutch Shell, Deutsche Bank and SAP are just a few of the eurozone's big businesses warning of low future expectations.
This year, the eurozone is also expected to clean up its banking sector before implementing a centralized banking union. The clean up will involve a series of evaluations of the region's banks, which most expect to be quite rigorous. In an effort to sure up their finances ahead of the checks, eurozone banks could face huge losses.
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