"While the growth outlook is improving for the currency bloc, the ongoing problems in the banking sector, which are manifested through ongoing credit contraction, will continue to act as a drag on both growth and inflation. This will put renewed pressure to act on the ECB."
- Colin Bermingham, an economist at BNP Paribas SA
The 18-nation economy is sending mixed signals, making it more difficult for Mario Draghi to assess the condition of the economy and take any decision regarding the ECB monetary policy.
On Friday the Eurostat unveiled two key reports, that were in markets' focus for the whole week; however, the initial market reaction was moderate. While the situation in the labour market improved in December, inflation moved further away from the central bank's target. Therefore, markets stuck for direction and even the most traded currency pair lost just 20 pips. According to the official data the Consumer Price Index rose just 0.7% in January from the same period a year earlier, and decelerating from December's reading of 0.8%. Analysts have expected the CPI to reach 0.9%. A core measure, however, moved higher by 0.1%, reaching 0.8%. Nonetheless, both indicators are significantly lower than the level considered to be a healthy one.
At the same time, the labour market sent and optimistic sign on Friday, with the unemployment rate falling to 12.0%, the same as downwardly revised level a month ago, and beating analysts' estimations for a 12.1% figure. This week, the ECB is widely expected to stay pat on its monetary policy.
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