-Jeremy Stretch, head of currency strategy at CIBC World Markets
European economy is on the mend and the worst is over. These hopes have been boosting the single currency since July 2013, when Draghi pledged to do whatever it takes to save the currency union. Strengthening domestic currency is a sign investors are getting more confident in the economy, however, it can become a massive drag on the bloc's exporters, making their product less competitive globally. During the last several months, the RBA was constantly repeating the Aussie is at an "uncomfortably" high level and these comments eased some of the pressure on the central bank. Now, with EUR/USD around 1.38 ECB's officials are trying to do the same thing, by pushing the currency lower only by their comments.
The ECB will hold a policy meeting next week, where policymakers can introduce another portion of fresh stimulus measures, as inflation eased back to 0.7%. This week, Germany's Bundesbank said the ECB should buy loans and other assets from the region's banks in attempt to support growth in the region. In other words– introduce the U.S.-style quantitative easing. ECB Governing Council member Erkii Liikanen claimed the central bank is keeping a close eye on the Euro, assessing its impact of the inflation, while European Commission vice-president for industry Antonio Tajani warned that EUR/USD around 1.40 is a threat for the 18-nation's bloc's economy.
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