Before ECB’s meeting: Euro Losses Momentum To Possible Rate Cut

The ECB’s Governing Council is meeting next Thursday and then we’ll get the first opportunity to find out if the market perception is correct. The price of money is very low (0.50%) and while it is true that inflation fell in October in the eurozone to 0.7%, some analysts considered premature that the ECB would opt this week for a reduction in interest rates.

How can impending lower rates be premature? Only two months ago, the ECB revised its forecasts of inflation, placing them at 1.5% in 2013 and 1.3% in 2014. Then, Draghi stressed the risks on the downside on the price stability are balanced with risks on the upside…

At the moment, we know that the data of inflation in October was 0.7%, four tenths lower in September and away from around the 2% ECB brand aims to meet the price stability. We also know that the energy and food components explained more half of what inflation fell in October, although there is a moderation of the prices in headings as the services sector, which is to indicate that the recovery of domestic consumption is still very fragile in the major countries of the euro area.

The most important reaction has occurred in the foreign exchange market and only one can describe as positive, given the harm that could do to the European economic recovery a euro at 1.40 dollars levels for an extended period of time.

Let us remember that the weakness of the dollar against the euro has been a consequence of the U.S. Federal Reserve asset purchases. If the Fed starts an early tapering and the ECB makes a move regarding interest rates, the euro could move next year towards the area of 1.25 dollars, close to its point of equilibrium, according to experts.

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