How close is the Eurozone to deflation?

The euro was again relatively range-bound yesterday. It saw some strength in the morning as German Economic Sentiment figures came in above forecast, but the impact of this on the market was relatively muted as the figures were still well below the previous month’s results. We saw little movement for the euro against the US dollar, most likely as traders are unwilling to take any bold positions ahead of this evenings announcement from the US Federal Reserve. Against sterling, the euro remained flat throughout the day, until the evening when sterling strength meant the euro lost nearly half a cent.

Looking forward to today, yearly inflation figures for the European bloc will be watched closely. The central bank is battling currently to stabilise falling inflation levels, and any figure below the forecast 0.3% will fuel speculation that the Eurozone will enter a phase of further quantitative easing methods, such as the buying-up of bonds or asset-backed securities. Such an announcement would, in normal circumstances, further undermine the euro against sterling.