The Euro weakened against the Pound over the weekend and remained softer on Monday after European Central Bank President Mario Draghi warned that monetary stimulus will be needed as the Euro exchange rate remains stubbornly high.
Draghi warned on Saturday that the Euro’s persistent strength could prompt the Central Bank to introduce further monetary easing. Further gains to the Euro would force the ECB to act in order to prevent inflation across the 18-nation Eurozone from falling further.
“The strengthening of the exchange rate requires further monetary stimulus. That’s an important dimension for our price stability. I’ve always said that the exchange rate is not a policy target, but it’s important for price stability and growth. What has happened over the last few months, it’s become more and more important for price stability.” Draghi said to reporters in Washington.
The ECB said that inflation across the Eurozone would be around 1% if the exchange rate hadn’t continued it’s upwards rise, twice the 0.5% rate recorded in March which was the weakest level recorded for more than four years.
The ECB target for inflation is just under 2%.
Also weighing upon the Euro was the increase in tensions in Ukraine. Violence erupted in the east of the country over the weekend resulting in the death of one Ukrainian and the wounding of several more.
In response to pro-Russian gunmen occupying several government buildings in the east of the country, the Ukrainian government said that it would launch a full scale assault to retake the buildings. The deadline set for the gunmen to withdraw has passed with no sign of surrender.
Kiev promised to take back control, an all-out assault carries huge risks and could trigger a reaction from Russia, which has tens of thousands of troops camped near its border with Ukraine.
The Euro will weaken further if today’s industrial production data comes in below forecasts. The Pound meanwhile is likely to see light trading due to a lack of domestic data releases out of the UK.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3848 ,
Euro,,British Pound,0.8276 ,
Euro,,Australian Dollar,1.4732 ,
Euro,,Canadian Dollar,1.5201 ,
British Pound,,Euro,1.2080 ,
[/table]
