Mario Draghi To Face EU Parliament Today

European Central Bank President Mario Draghi is likely to face a barrage of questions Monday from lawmakers asking what can be done to reduce the value of the euro amid further signs the recovery in the 18-country eurozone is faltering.

The ECB is coming under increasing pressure to do more to stem the strength of the euro, which is hurting exporters and keeping a lid on the region’s recovery from recession.

At around $1.36, the euro is down from its 2014 high of just below the $1.40 mark in May but remains well above its historic average. Everyone from German carmakers to Greek yoghurt makers are finding it more difficult to sell their wares.

Figures earlier suggested that the recovery in the eurozone is flagging. Official figures showed industrial production down a monthly rate of 1.1 percent in May. That took the annual rate of decline to 0.5 percent and stoked fears that industry will fare worse in the second quarter of the year than the first, thereby dampening growth. During the first quarter of 2014, the eurozone grew by a paltry 0.2 percent.

“Although the decline is likely to have been temporary, the disappointing numbers add to evidence that economic growth in the region is slowing,” said Chris Williamson, chief economist at Markit.

With the economy barely growing and not creating many jobs, politicians are piling pressure on the central bank. If needed, the ECB could further loosen its monetary policy through interest rate cuts or launch a monetary stimulus similar to those undertaken by the U.S. Federal Reserve and the Bank of England. Those programs involve injecting new money into the economy by buying large amounts of bonds and other financial assets.

Few economists think Draghi and the ECB want to go down that route, partly because of technical problems such as how to buy assets — and which ones — across a currency bloc comprising 18 countries. However, Draghi has said such a program, called quantitative easing or QE, is within the bank’s mandate and could be used if needed.

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza