Article by ForexTime
The EUR/USD is consolidating Thursday’s losses after the currency pair broke down generating 3-year lows. European Central Bank President’s comments this week that the “risk of doing too little outweigh risks of doing too much” speech highlights the increased possibility that the central bank is headed for full-blown QE following a weak set of September confidence surveys out of the Eurozone and the persisting threat of deflation.
German GfK consumer confidence dropped to 8.3 in the October reading from 8.6 in September. This was a sharper than expected decline and likely reflects not only the negative economic headlines, but also the mounting uneasiness in Germany over the ECB’s low interest rate policy. The breakdown, which is only available until September shows a sharp drop in business expectations as well as the willingness to save. The willingness to buy also dipped, despite the fact that Price expectations declined again. This comes on the heels of Thursday’s weaker than expected IFO survey and the soft PMI and Zew surveys released earlier in the week.
German August import price inflation decelerated to -1.9% year over year from -1.7% year over year in the previous month, with prices down 0.1% m/m. Lower energy prices remain a key driving factor, but even excluding oil products, the index was down 1.3% year over year.
The ECB is moving towards a policy that attempts to focus on market imbalances, and the rebalancing process in countries that have been hit weak economic conditions. It already has helped to lower government refinancing costs as well as aided the private sector with its low interest rate policy. These measures can address the problem if accompanied by government that face the painful fact of the adjustment processes, which entails handling low inflation and wage growth as well as reforms are necessary to improve competitiveness.
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