What’s in store for the Euro? (Mike Vaughan)

Sterling has had a relatively stable time against the Euro over the past few weeks having shifted just 1.3% over the past month, this is not a particularly big spread during this length of time but fortunately for Euro buyers the month high was reached on Wednesday.

For me the major release for Europe and the direction of the Euro could depend on the next ECB interest rate meeting scheduled next Thursday. On Wednesday inflation figures in the Euro Zone fell further below the target level of 1% and again bringing real concerns to the region over deflationary pressures.

Some of the major problems with deflation can be the lack of consumer spending as the general public expects prices to continue to fall and this in turn can increase the real value of money and the real value of debt. Deflation therefore makes it more difficult for debtors to pay off their debts. For this reason consumers and firms have to spend a bigger percentage of disposable income on meeting debt repayments.

With inflation falling the ECB may have to take action and this could be as soon as next week. this could put more pressure on the Euro in the weeks to come.

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