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ECB Could Be Feeling The Pressure Of A Strong Euro

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ECB Could Be Feeling The Pressure Of A Strong Euro

The European Central Bank may be feeling the pressure to ease further at Thursday’s policy meeting as the euro catapulted towards $1.40 this week on stronger than expected data and the expectation that the bank isn’t planning to make a move.

The common currency traded steadily at $1.3910 at 5:45 GMT on Thursday morning after coming within a half-cent of $1.40 on Wednesday.

Although the ECB has repeatedly insisted that the exchange rate is not a policy aim, bank President Mario Draghi admitted last week that the bank would be forced to take the common currency’s strength into account if it continued to rise.

The currency’s rising value is seen as a negative for the region as it has the potential to weigh on prices and makes the region’s exports less competitive.

See also: The Futility Of Attempting To Predict The Markets

Inflation remains a concern for the bank as the bloc’s inflation figures have been dangerously low in recent months, causing many to worry about the possibility of deflation. Though most don’t expect the eurozone’s consumer prices to slip below zero, April’s 0.7 percent reading was still far below the ECB’s target of two percent.

However, April’s inflation data was a modest improvement from March’s 0.5 percent which many believe will allow the bank to wait until June to implement a quantitative easing program.

Bloomberg reported that most analysts are not expecting to see the central bank make a policy move at Thursday’s meeting, saying that the currency’s strength is not enough to prompt urgent action.

Many believe that Draghi’s comments last week were designed to put pressure on the currency rather than to shed light on the bank’s plans.

 

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