The Euro remained on the defensive against its key rival, the U.S. Dollar, as investors speculate on the possibility that the European Central Bank might now be considering a looser monetary policy in order to suppress the deflationary trend. It appears that recent commentary from a council member could be preparing investors for just such an event as once again the council member reiterated the ECB’s several options; what makes the news even more surprising is that the official, who is also the head of the German central bank, had consistently been critical of quantitative easing in the past.
As reported at 12:11 p.m. (JST) in Tokyo, the EUR/USD was trading at $1.3784, remaining within striking distance of the recently struck trough of $1.3749 and moving further from the Euro’s rally at $1.3967 which occurred after the ECB policy decision, when it seemed that easing was definitely not on the table. The EUR/GBP dipped to 0.8311 Pounds while the EUR/JPY earlier hit a 3-week trough at 140.28 Yen on the EBS trading platform.
Is Draghi Setting the Stage
Further putting the Euro on the backfoot was a comment recently made by the ECB head Mario Draghi who cautioned investors that the ECB was watching inflation closely and was prepared to move if necessary. Updated CPI data will be released on Monday, and a consensus of analysts is expecting that inflation could fall further to 0.7%, still below the ECB’s 1% forecast. Analysts believe that the ECB is attempting to prepare markets for an adjustment to strategy, perhaps as soon as the next policy meeting.