What Will Mario Draghi and the European Central Bank Do This Time?
The betting is the euro is going to become weaker because Mario Draghi, the president of the European Central Bank, wants to provide more monetary easing, perhaps dropping the value of the euro to go below $1.36.
Along with help from Janet Yellen, his counterpart on the Federal Reserve, the value of the euro actually broke the $1.34 barrier as it dropped to $1.3367 on July 30. The value rose a little after that as the euro closed at $1.3422 on Monday, August 4, but at 10:30 today, it was trading a little below the July 30 close at $1.3364.
Read More: Warren Buffett's Top 10 Dividend StocksExpectations are for the euro to fall further. The expectation was the euro could fall as low as $1.3200. Today there are thoughts it could go as low as $1.3000, down a full 10 cents from where it was trading around $1.40 in the first half of March this year. The overwhelming concern being expressed in these expectations is the economy of the eurozone is falling from disinflation to deflation. If this is true then the pressure is on the ECB to take an even more aggressive stance with respect to monetary policy in order to try and get the eurozone economies growing faster and stem the falling rate of price increases. One should note that in the earlier meeting, the ECB moved a policy rate into negative territory...something very radical in itself. But Draghi has continually resisted moving the ECB into a stance of quantitative easing. He seems to have doubts about whether or not quantitative easing can do much good -- a judgment he has apparently draw from the America experience -- and has tried to avoid moving in that direction. Read More: Euro Week Ahead: ECB Meeting In Focus As Recovery Stalls However, it appearing as if he has less and less room to maneuver in terms of continuing to avoid moving toward quantitative easing. In fact, more of the market sentiment seems to be that he will eventually have to take that step and the question is only when will he make it.
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