ECB Under More Pressure As PMI Slips
The euro remained below $1.32 on Tuesday morning as the European Central Bank’s September policy meeting approached.
The common currency traded at $1.3127 at 6:00 GMT following poor economic data and news that the situation in Ukraine was worsening.
Data from Germany out on Monday confirmed that the block’s largest economy contracted in the second quarter, a worrisome sign for the region’s recovery. After posting 0.7 percent growth in the first quarter, German GDP fell to 0.2 percent annually in the second quarter.
The nation’s economic indicators have painted a gloomy picture recently, suggesting that the country’s once dependable growth is slowly tapering off.
The decline in Germany is partly because of ongoing conflicts around the world, which has been affecting the nation’s trade. Most notable is the growing tension between the West and Russia over the worsening situation in Ukraine.
Reuters reported that Ukrainian President Petro Poroshenko has threatened a “full-scale war” if Russia continues to send troops and weapons across the border. Kiev claims that Russian convoys including armored vehicles, weapons and soldiers are being sent across the border in support of pro-Moscow separatists who have taken control of the eastern part of Ukraine.
Following Kiev’s allegations, the U.S. and Europe began to prepare new economic sanctions against Russia in support of Ukraine.
However, if a new round of sanctions is introduced it will likely have a negative effect on the already fragile eurozone economy. Since Russia is one of the bloc’s largest trading partners, limited transactions between the two could have as much negative impact on the eurozone as it does on Moscow.
The growing risk in Ukraine is likely to put more pressure on the ECB to ease further, but most analysts are betting that the bank will hold off for now. In June the bank revealed a new package of easing measures, some of which won’t take effect until September.
Because of that, the bank will probably hold off until the effects of June’s easing can be measured.
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