"After the softer inflation data in January, the staff forecast of 1.1 percent on average in 2014 looks too high"
- Mark Wall and Gilles Moec, Deutsche Bank chief economists
The single currency fell to the lowest level since November 22 this weak, following the disappointing inflation report on Friday, amid concerns that constantly weakening inflationary pressure in the 18-nation bloc will prompt European policymakers to ease monetary policy further. Moreover, the Euro is expected to remain under pressure until the ECB's meeting on Thursday.
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%. The data confirms earlier fears that inflation is indeed far below the official target of 2%. According to the latest projections from the ECB, a measure of inflation is expected to remain around 1.1% during the whole of 2014. Another serious concern is German inflation that also came below the average forecast, supporting the case of weak inflation even in core countries.
While the ECB is unlikely to cut its key refinancing rate this week, it still can introduce other measures to boost growth. Mario Draghi can decide to pump more liquidity into the financial sector via the LTROs. The ECB has already injected more than 1.0 trillion euros at the end of 2011 and the beginning of 2012 to avert a disastrous breakup of the bloc.
© Dukascopy Bank SA