The continued weakening of the Euro is good news for policymakers. The saving grace of the decline is that it allows them to analyze how dovish they need to be. Industry leaders hope that the European Central Bank does not waste this reprieve that it has been granted.
The economy of the euro-area has been a rapid decline with export-focused members of the community hit the hardest. Fears of the currency nearing 1.25 versus the United States dollar are palpable. Keeping it away from that benchmark, industry experts warn, will be key to any hope of economic recovery that is sustainable.
The current hardships in the economy stem from the highs that the currency felt during 2017 and the first half of 2018. Expectations of the ECB to extend stimulus are keeping the currency down currently.
It is difficult o see any benefit from the low interest rates in the Eurozone despite them having been in the negative for the last 5 years. Inflation has gone down to just 0.8%, which is a far cry from the standard of 2% that the ECB thinks is ideal for a growing economy. Italy’s forecast is looking grim, despite it being technically a rise in growth. The estimates put growth at just 0.1%, 0.7% lower than inflation. This is causing growing unease in the south.
Germany’s numbers in manufacturing have tumbled to 44.1 in March. The five leading research institutes in Germany were forced to revise their growth figures for the industrial powerhouse. They slashed the original 1.9 growth figure to just 0.8 percent.
The last decade has been fraught with problems that have kept the European Central Bank in a tailspin. Monetary policy has not been restored to anything resembling a normal situation. This leaves it with very little maneuvring ability to improve the sickly economy. This is why the weak euro is a good thing. It helps the ECB where it can do very little in terms of monetary policy – and it is buying them time to come up with a solution that will satisfy all stakeholders in the common currency zone.
Many in the financial markets are looking to April 10th, when ECB President Mario Draghi speaks at a press conference. His remarks earlier were taken by the markets as a dovish move. This move drove the Euro lower and industry experts are waiting for him to explain his comments. He said at the time that the ECB should try and keep the benefits of negative interest rates.
The hawks in the Eurozone responded in turn, and for good reason. However, it could lead to the current currency weakness taking a sharp turn. This would pile pressure onto the economy, which is not something that anyone in the EU wants to see.
Policy fracturing is exactly what the Euro needs to avoid at this time. It cannot appear to be weak if it is to sustain the momentum granted by recent activity.