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Dragui remarks makes Euro fall to its lowest against the dollar since June 2010

Saturday, January 3rd 2015 - 07:56 UTC
Full article 8 comments
“We have to avoid too-high inflation and we have to avoid too-low inflation as well,” Draghi said. “We have to avoid too-high inflation and we have to avoid too-low inflation as well,” Draghi said.

The euro fell Friday to a 4 ½-year low against the dollar after European Central Bank President Mario Draghi indicated the bank could soon back a government bond-buying program to deal with alarmingly low inflation across the 19-country Euro-zone.

 In an interview with the German financial daily Handelsblatt, Draghi said the risk the bank won't fulfill its mandate to keep prices stable is greater now than it was six months ago.

“We have to avoid too-high inflation and we have to avoid too-low inflation as well,” Draghi said. “We are making technical preparations to alter the size, pace and composition of our measures in early 2015.”

For many in the markets, that's a clear hint from Draghi that the bank stands ready to back a full-blown bond-buying program on the lines of those undertaken by other central banks, such as the U.S. Federal Reserve and the Bank of England. Many experts think the ECB could make the announcement Jan. 22 at its next monetary policy meeting.

In the wake of his comments, the Euro fell 0.5% to $1.2025, its lowest level since the summer of 2010, when the currency was reeling in the wake of Greece's first bailout and mounting speculation that other EU members were in acute financial difficulties.

The Euro has been in retreat for months on the back of expectations that the ECB will back a further stimulus as traders anticipate more of the currency in circulation.

While anemic levels of economic growth across the Euro-zone are a major source of concern for policymakers at the ECB, it's too-low inflation that's prompting the speculation of further action.

Inflation in what is now the 19-country Euro-zone (Lithuania adopted the Euro on Thursday) stands at 0.3%, far below the ECB's annual target of just below 2%.

The worry is that too-low inflation turns into an outright drop in prices — though that sounds good in principle, deflation can choke the life out of an economy if consumers put off purchases in the hope of future bargains.

Although the ECB has cut interest rates to record lows and backed the purchase of some types of private-sector bonds, it has refrained from following others in buying government bonds, so-called quantitative easing, or QE.

Proponents of QE say the policy can help shore up a recovery and support prices by reducing the borrowing costs for businesses, households and governments. But many in Germany, Europe's most powerful economy, have voiced concerns about such a program, worried that it would amount to throwing money at profligate states.

Success is not guaranteed, as evidenced by Japan's return to recession even though the country's central bank is enacting its own bond purchase program.

The Euro was last down 0.82% against the dollar at $1.2003. The dollar was up 0.58% against the Yen at 120.46 Yen after hitting a more than one-week high against the Japanese currency of 120.74 Yen. Sterling hit a 17-month low of $1.5328 after data showed British manufacturing expanded less than expected in December.

Categories: Economy, Politics, International.

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  • Britworker

    The eurozone will be back in recession this year, I cannot wait for the hand grenade Greece is about to throw at the EU. All that money those German tax payers leant them that will not be getting paid back.

    Greek default and EU exit very soon.

    Jan 03rd, 2015 - 09:38 am 0
  • yankeeboy

    I've long thought the Euro was way overpriced. It should be a bit below the U$. Probably around .92/U$1 like it was when it was first introduced.
    Its got a way to go yet.
    I think the U$ is on a decades long upswing.
    Watch and see.

    Jan 03rd, 2015 - 12:42 pm 0
  • Conqueror

    This has been said before but it remains true. Individual currencies reflect the socio-economic circumstances of their countries. There is no way to have a currency reflecting the socio-economic circumstances of indolent southern Europe. It is now known, classically, that most Greeks avoid taxation. Italy and Spain have always been corrupt. Compare to northern Europe. Systems are designed better because they don't stop to have a piss-up and a sleep part way through the day. And, offshore, there's Britain, historically inclined to comply with the law. And what else? There's migration. Encouraged by the incompetent, Marxist EU, nationals of poverty-stricken eastern and southern states can migrate to leech from those who know how to govern and run an economy. The end result, if not checked, EU-wide poverty! It can already be seen. Romanians and Bulgarians, criminals by nature, migrating to the UK where they demand houses and benefits. Accustomed to living on the breadline, most of the benefits money gets sent back to Romania and Bulgaria. Including money for the children who have never been to the UK and the money stolen or from other criminal 'enterprises'.

    Probably best to shoot every Bulgarian and/or Romanian on sight. Together with Poles, Estonians, Latvians, Lithuanians, Hungarians, Slovaks, Slovenes and Czechs. But they should be given 24 hours to get out of OUR country. With only what they can carry. and being strip-searched as they leave. British armed forces need to be deployed to southern and eastern coasts with orders to shoot to kill. Individuals, boats, ships, aircraft. Fire on them all. Europe is not our concern. Might consider its problems once Britain is safe. No more migrants. And those already here to be ejected.

    Multiculturism to be rejected. Anything that isn't British to be demolished, destroyed, banned, prosecuted, penalised. Example; 50 years in gaol for wearing a burka in public.

    Jan 03rd, 2015 - 03:49 pm 0
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