Euro Under Pressure Amid Weak Data, ECB Expected To Ease In June

Euro currency concept illustrationThe euro has faced downward pressure in May and saw its most significant 2 week pullback versus the dollar since the end of 2013 amid weak economic and inflation data in the 18 member euro area combined with growing expectations that ECB President Mario Draghi will move forward with monetary easing during the central bank’s next policy meeting in June.

Last Thursday eurostat reported that growth in the euro area measured by GDP (Gross Domestic Product) grew only 0.2 percent during the first quarter of 2014 while annual inflation was 0.7 percent in April, up from 0.5 percent in March, but still well below 1.2 percent in the same period a year ago.

The ECB wants to avoid low inflation in the euro area and has set an annual inflation target just below 2 percent.

To help jump start the economy in Europe, ECB President Mario Draghi is expected to provide additional monetary easing measures at the June policy meeting.

On Thursday Draghi said the ECB Governing Council was “comfortable with acting next time” in reference to the ECB’s next policy meeting on June 5th, although he admitted that he wants to review staff projections in advance of the meeting.

Economists are expecting the ECB to cut its main  interest rate below 0.25 percent while bank overnight deposit rates will turn negative for keeping money parked overnight at the ECB, a move that is intended to spur more greater lending and investment across Europe.

The ECB’s current overnight deposit rate is 0 percent.

The ECB is not expected to engage in any type of quantitative easing in the near future.

-Johnathan Schweitzer

 

 

 

 

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