Inflationary figures for the Eurozone sparked speculation that the ECB may need to intervene with further stimulus. Mario Draghi has limited options given interest rates are already at 0%.

Inflation data is disappointing for the Eurozone

Yesterday inflation data was released for the Eurozone and caused further speculation regarding more stimulus in order to kick start the economy. In my opinion, and as I have said before, in a team you are only as strong as your weakest man. It is a hard task for Mario Draghi, head of the ECB to balance 28 different performing economies with one fiscal or monetary policy.

For example, German retail sales data and unemployment figures released this month have shown that consumers are spending more than before and that the labour market is performing extremely well. Will Mario Draghi be able to implement further stimulus on economies that are performing well?

What does this mean for our clients?

Next week’s interest rate decision and subsequent policy statement are now the focus point for any clients with Euros. Analysts are now claiming that more policy stimulus will be need at this meeting. For any new clients reading this, any change to monetary policy whether it is negative or positive, has the capability to heavily influence exchange rates. In order to boost inflation, a central bank will normally cut interest rates in order to make saving money less attractive and get people spending. The Eurozone’s current interest rate is at 0% so any further decrease will effectively mean that customers are charged to hold money in their account.

Mario Draghi has hinted that he is not a fan of negative interest rates, although he has stated that he will use any tolls necessary to kick start a sluggish economy. If he does hint at further interest rates cuts or stimulus, I would expect to see the Euro weaken. Any clients looking at buying Euros in the short-term should be in contact with your account manager to help time this transaction.

If the ECB cut interest rates further, the Euro may weaken providing new opportunities for those buying the Euro. Speak to our team on 01494 725 353 to find out more.


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