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Euro Sinks Lower As Inflation Data Sparks Concern

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Euro Sinks Lower As Inflation Data Sparks Concern

The euro made its way lower on Thursday after inflation data from the bloc continued to fuel worries that the region could be headed for a period of deflation. The common currency traded at $1.232 at 7:00 GMT, despite the dollar’s drop following the Federal Reserve meeting.

On Wednesday, Reuters reported that the EU statistics office confirmed that the region’s inflation fell to 0.2 percent in November, a 0.3 percent annual rise. The figure was expected and came inline with flash estimates, but served as a reminder that the bloc could sink into a period of deflation if the European Central Bank does not step in. The report cited falling fuel prices as a major driver for the low figure, something ECB President Mario Draghi warned could have a negative impact on the bloc’s inflation.

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Though the ECB has been reluctant to implement a large scale quantitative easing program like those seen in the United States and Japan, many are expecting the bank to unveil a similar stimulus program in early 2015. Draghi has assured investors on several occasions that the bank is ready and willing to ease if need be, but several of the bank’s governing council members have been very vocal about their disapproval of such a program.

Meanwhile, the U.S. Federal Reserve announced on Wednesday that interest rates would remain low for “a couple” more meetings, suggesting that the bank will hold off on a rate hike until mid-2015. The Fed has been cautious about a rate hike, saying that the deteriorating global economy coupled with uncertainty in the U.S. labor market are reasons to be wary of raising rates too soon. Still, the bank is widely expected to increase rates some time next year, with many betting that a hike will come sooner rather than later.

 

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