Further ECB Stimulus May Hurt Euro

The euro will weaken further over the coming year, according to analysts polled by Reuters, who said the possibility of further stimulus from the European Central Bank due to rising deflation risks will drag the currency lower.

The strength of the euro was described as a “serious concern” by ECB President Mario Draghi in May when he first hinted at a broad-based asset purchase program.  The currency has slumped almost 10 percent since then, trading around $1.262 on Wednesday. But the poll taken this week showed currency strategists were split on whether the ECB is comfortable with the current exchange rate.

Sixteen of 30 strategists said the ECB is comfortable with the current euro/dollar rate. The remaining 14 strategists said it needs to fall further and gave a median of $1.20.  The euro was trading near $1.40 in June when strategists said the exchange rate would need to drop to $1.30 or lower for the ECB to be comfortable with it to help raise inflation.

Reuters

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