Euro Struggles Amid Poor Economic Data And French Government Shake-Up

The euro continued to struggle on Wednesday as the French government fell apart and concerns that the eurozone economy was sliding further escalated.

The common currency traded at $1.3160 at 5:30 GMT after falling to a one year low on Tuesday as investors hedged their bets for another round of easing measures from the European Central Bank.

On Tuesday, German business sentiment data showed a fourth consecutive monthly drop, sparking concern that the region’s largest economy was feeling the effects of an ongoing sanctions war with Russia. With little end in sight to the conflict in Ukraine, markets are uneasy about the eurozone’s ability to deal with its increasingly limited transactions with Russia.

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Meanwhile, France is struggling to with its second government shake up in just five months as infighting over policy resulted in several policy makers resigning on Monday. The nation has been struggling to get back on track ever since the end of the bloc’s financial crisis and has been very vocal about its disapproval of Germany’s austerity tactics.

Also worrisome is eurozone inflation data due out at the end of the week which analysts see falling even lower. Reuters reported that the bloc’s annual inflation rate is expected to have slipped to just 0.2 percent in August, dangerously close to zero and well below the ECB’s two percent target.

Over the weekend, ECB President Mario Draghi admitted that the bank’s expectations for both short and longer term inflation have dropped and promised that the bank would address these issues at its September 4 policy meeting. Draghi also pledged to use every available tool to keep the eurozone from slipping into a period of deflation.