Euro Weakens As ECB Monthly Report Warns Of Inflation Risk

By David Schutz,

THE TAKEAWAY: ECB monthly report sends mixed messages -> Inflation risks seen, but central expects inflation to align itself to forecasts -> Euro drops ahead of release but stabilizes as markets digest

The moderate economic recovery seen recently is subject to downside risks as inflation threatens to devalue the Euro, the European Central Bank’s monthly report for April said today. The statements were in line with ECB chief Draghi’s policy speech earlier in the month.

The Euro sank ahead of the ECB’s release but stabilized later on as markets digested the mixed messages.

The ECB’s Governing Council said it plansto keep interest rates unchanged, and mentioned that it expectsprice developments to remain stable. The report mentioned a“moderate recovery” seen in the beginning of 2012, butwarned that inflationary risks remain a factor in priceaction. Inflation fears have returned to the fore inGermany as property prices rise and monetary policy remains tooloose.

However, the ECB also said it has the tools tocombat inflation in the short and long term. The report pointed out that CPI is expected tostay above 2% this year but in the medium-term will slow to theECB’s price stability target.
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Original Article: http://www.dailyfx.com/forex/market_alert/2012/04/12/ECB_monthly.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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