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Draghi Comments Send Euro Tumbling to 4.5-Year Low

Draghi Comments Send Euro Tumbling to 4.5-Year LowDraghi Comments Send Euro Tumbling to 4.5-Year Low

The value of the euro has fallen to its lowest level since the middle of 2010, following comments from Mario Draghi, the president of the European Central Bank (ECB).

In a newspaper interview, he hinted again that the bank might soon start a policy of quantitative easing to try to stimulate the eurozone economies, BBC reported.

The aim would be to stop the continued fall in the general level of prices.

The euro fell 0.4% to $1.2034 after Draghi’s comments were made public.

Recently, the official eurozone inflation rate has fallen to just 0.3%.

To stop deflation – falling prices – gaining a grip on the world’s largest trading bloc, the ECB could launch its own program of quantitative easing (QE) by buying government bonds, thus copying its counterparts in the UK and the US.

The purpose would be to inject cash into the banking system, stimulate the economy and push prices higher.

Speaking in an interview with the German newspaper Handelsblatt, Mr Draghi said: “We are making technical preparations to alter the size, pace and composition of our measures in early 2015.”

Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi UFJ, said: “The comments suggest the ECB will soon adopt sovereign debt QE, which may come as soon as their next meeting.’’

If bond prices rose because of this extra demand from the central bank, the yield available to bond investors would fall, with the knock-on effect of reducing the general level of interest rates in the eurozone banking system.

And it is that prospect which has helped to weaken the value of the euro on the foreign exchanges.

 Eurozone Concerns

Consumer inflation has not been at the ECB’s target level of just below 2% since the start of 2013, and has been falling since a 3% peak late in 2011.

The eurozone’s low inflation has been blamed for undermining growth, and has already prompted ECB stimulus measures.

In September, the bank said it would begin buying covered bonds, which are bonds backed by public sector loans or mortgages.

In December Draghi said ECB staff “have stepped up the technical preparations for further measures, which could, if needed, be implemented in a timely manner.”

Financialtribune.com