The EUR has seen its value decrease against GBP of late, as the Eurozone continues to show concerning signs of an economic slowdown.
Fears over a recession across the single bloc have risen after recent inflation figures showed a fall to their lowest levels in three years. One of the key drivers behind this negative downturn is the current slowdown in Germany, the Eurozone’s key economic powerhouse.
German economic output is at its lowest point since the UK’s decision to exit the single bloc and despite the UK economy suffering as a result, it seems as though the ripple effect is now sapping investors’ confidence in the Eurozone, with the EUR suffering as a result.
With Eurozone inflation falling to 1%, compared to 2.2% during the same period last year, it is natural that analysts have been questioning not if but when the European Central Bank (ECB) will step in.
In fact, the ECB have already stated that they are open to cutting interest rates again if necessary, which if it were to come to fruition, will push rates into a deflationary status.
This could put the Eurozone in a similar position to Japan, which has had a negative interest rate for several years, although this in itself brings with a number of potentially negative variables. A deflationary status can bring with poor or very slow economic growth, along with a long period of low interest rates, meaning the economy in question can become unattractive to investors.
Alongside this potential change to their monetary policy the ECB could also look to re-introduce their bond buying/Quantitative Easing programme, in order to help support the Eurozone economy.
Calls for this measure to be instigated having grown but with a potential limit to how much QE can be injected by the central bank due to EU rules and national political choices, whether its introduction will have the desired effect is currently being debated.
In truth, the Eurozone has seen its economic output decrease sharply following the ECB’s decision to tie up their last extended QE programme in December of last year, which could indicate to investors that in fact the foundations of the single bloc’s economy have been fragile for some time and remain so today.
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