ECB worries over deflation undermine the euro

The outlook on the economic health of the Eurozone arguably took a turn for the worse yesterday as an executive board member of the European Central Bank (ECB) stipulated that both quantitative easing and the implementation of negative interest rates remain possibilities. Both quantitative easing and negative interest rates would have considerable negative effects on the performance of the single currency and, according to the board member, are in the ECB’s armoury and could be used to prevent the Eurozone from experiencing deflation. This possibility of further monetary easing is perhaps some way off at the moment, but merely the mention of such an eventuality had a notable impact on euro causing it to fluctuate against the US dollar and depreciate against sterling and the Japanese yen. The day’s most prominent data release also came through to the seventeen-nation currency’s detriment yesterday as monthly Industrial Production figures detailed a greater level of contraction than was expected. Expect increased volatility today as a number of key events have the potential to influence the strength of the single currency. French and German preliminary GDP figures for the third quarter are set to be released in the morning and are both expected to show marginal growth. These are followed by French quarterly employment data and the ECB Bulletin – which will detail the data that the ECB considered when making the recent decision to reduce interest rates. Call your trader now to track today’s euro activity.