The euro plummeted further on Wednesday as investors reacted to talks of a possible easing of the monetary policy by the European Central Bank in order to lower the currency.
The 18-nation currency dropped to a three-week low after Jens Weidmann, the Bundesbank Chief and member of ECB governing council, said that quantitative easing is one of the options being considered to fight deflation, including negative interest rates.
The market is waiting for euro zone inflation figures on Monday, and the outcome of the ECB’s policy meeting next week.
The euro had earlier touched a two and half-year high in mid-March amid waning expectations that ECB would announce further monetary easing measures. The currency had earlier recovered on Tuesday due to remarks by Weidmann that the “current levels” don’t warrant for a monetary policy action.
Matters were helped further by ECB’s President Mario Draghi’s comments that the bank is yet to see any sign of deflation in the spending habits of consumers. However, the Bundesbank is currently open to purchasing assets from lenders as it softens its strict policy on quantitative easing, pushing investors away from the euro.
The currency was trading at $1.3800 on Wednesday, slightly below its Tuesday’s three-week low of $1.3749. It also fell against the Japanese yen at 141.25.
“The ECB will be dogmatic about trying to talk down the euro. But unless these words are followed up by action we will not see the euro falling much,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.
More officials have started fretting over the stronger euro due to the fact that it cuts imported inflation and risks creating deflation in the eurozone.
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