The euro experienced some weakening against the US dollar and sterling this week, although both rates have remained within a relatively narrow range. The euro’s slightly poorer performance was initiated by unimpressive inflation figures released at the beginning of the week. The European Central Bank (ECB) has come under a degree of pressure to combat low inflation and indeed the threat of deflation; this may result in further interest rate reductions when the ECB meets next week – a move that would cause the single currency to weaken sharply.
This pressure was further justified by the European Commission Economic Forecasts, which put Eurozone inflation based on consumer prices at 1% for 2014 – a significant reduction from November’s estimate of 1.5%, and dangerously below the European Central Bank (ECB)’s 2% target.
The euro has the potential to go up or down in a significant fashion today as more key inflation data will be released in the morning. Additionally, the monthly Eurozone unemployment figures could add to aggregated movement in the markets if the figures differ from last month’s release detailing an unemployment rate of 12%, as economic data like unemployment figures contribute to sentiment over the strength of the economy and the strength of a currency by association.
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