Deflation In The EU?
At least that’s what ECB honcho Draghi would like us to believe as he looks to weaken the Euro and help inflate away some of the debt that is plaguing Euro nations. The market was initially rallying this morning as Draghi did as expected, cutting interest rates by 25bp at the rate decision.
However it was in his accompanying statement where he brought up the idea of deflation, which essentially sent the Euro careening lower as the market believes that he will begin to print money ala Bernanke and the Fed. The ECB has one central mandate– to create price stability. However with the debt crisis spiraling out of control and the potential liquidity crisis that brings, easier money is needed. But with easy money comes inflation and it will be questionable how that sits with other EU leaders, particularly those in Germany.
Tomorrow’s EU leaders summit is unlikely to produce concrete solutions to the debt crisis so perhaps this is a preemptive move on his part. Either way, a 100 pip move lower in 30 minutes is a huge swing and is one of the reasons why the forex market remains the favorite of traders around the globe!