The Euro fell close to a 2-week trough during the Friday trading session in Asia after an unexpected drop in inflation numbers revived speculation that the European Central Bank might see their way clear to taking on additional stimulus measures in order to give the Eurozone economy a boost. According to the data, consumer inflation fell to its lowest level in four years at 0.7% last month against expectations that the data would be flat at 1.1% while core inflation, which strips out volatile components such as energy and food, dropped to 0.8%.
The EUR/USD pair dropped to $1.3538, a 2-week low, before creeping back to $1.3554, still a loss of 0.3% during the trading day which compounds Thursday’s sharp 1.1% loss. There is a key support at $1.3550 which represents a 76.4% retracement of the mid-October rally. The EUR/JPY pair also hit a fresh 2-week trough trading at 132.985 Japanese Yen.
Will ECB Intercept to Stave Off Deflation?
One analyst in Tokyo pointed out that the significant fall to below 1% suggests that there might me more to come, as the experience at least in Japan is that once a deflationary trend embeds itself its difficult to reverse. The feeling then is that the ECB will likely strongly hint that it is prepared to provide stimulus as soon as it deems the timing appropriate.