Euro Steady As Investors Anticipate More Stimulus

The euro began the week above $1.24 after the volume of the European Central Bank’s cheap loan offerings last Thursday came in below expectations. The common currency traded at $1.2444 at 7:00 GMT as investors anticipated more easing in early 2015.

The Wall Street Journal reported that eurozone banks took on just 130 billion euros worth of cheap loans from the region’s central bank last week, below analyst expectations of 170 billion euros. The lower figure suggested that the ECB is fighting more than just a cash flow problem as banks are reluctant to lend despite the ECB’s incentives.

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Instead of making loans, eurozone banks are focused on shoring up their own balance sheets in order to meet new, more stringent rules about capital requirements. With the eurozone’s financial crisis still weighing heavily on the industry, the ECB will struggle to add the amount of stimulus necessary to kickstart the economy using this method.

For that reason, markets are anticipating the announcement of a large-scale quantitative easing program some time early next year. Most are expecting the bank to roll out an asset purchase program similar to that seen in the United States and Japan despite the ECB’s reluctance to use such a method in the past.

Moving forward the focus will be on economic data from the region for any clues about the bank’s plans for stimulus in 2015. On Friday, the region’s industrial production figure was pleasantly surprising as it increased for the second consecutive month in October. Production increased by 0.1 percent from September to October and 0.7 percent annually. Although the figure was positive, it fell slightly below analysts’ expectations of a 0.2 percent monthly increase.