Currency Note Euro

Euro under pressure as ECB worries about deflation

By Ricky Bean August 26th, 2014

The euro continued to wane towards the end of last week and lost further ground against sterling and the US dollar over the bank holiday Monday, notably being pushed back above the 1.25 threshold by sterling. Comment made by the President of the European Central Bank (ECB) in Jackson Hole made it very clear how worried he is about the state of the Eurozone economy and the low level of inflation and that they were geared up to “do whatever it takes” to ensure that the Eurozone economy didn’t suffer deflation. This weakened the euro across the board.

Influential data releases are more evenly spread this week. This morning, we are offered another insight into sentiment within Germany as Business Climate figures are due out. This index is produced as a result of a survey of German businesses and provides a useful insight into the economic outlook of Europe’s largest economy. Such figures often have an immediate impact on euro rates. Inflation data from Germany as well as from the Eurozone as a whole are due out on Thursday and Friday respectively. Low interest rates and the remaining threat of deflation have been key factors in determining the monetary policy of the European Central Bank (ECB). ECB President Mario Draghi has stated that more aggressive action to tackle this threat is still a possibility and poor Consumer Price Index (CPI) figures are likely to intensify fears that such action may materialise and therefore weaken the single currency further.