On Monday the euro dipped against the dollar after data showing German inflation fell to a five year
low in December added to pressure on the European Central Bank to
implement quantitative easing measures.
Germany’s Federal Statistics office said the annual rate of inflation rose just 0.2% in December, below forecasts for 0.3% and slowing from 0.6% in November. German consumer prices were flat on a month-over-month basis, compared to expectations for an increase of 0.1%.
The weak data contributed to worries over the threat of deflation in the euro area after data last week showed that the annual rate of inflation in Spain, the euro zone’s fourth-largest economy, fell 1.1% on a year-over-year basis last month.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, rose to highs of 91.97 on Monday, the most since December 2005.
Demand for the greenback continued to be soported by the diverging policy outlook between the Federal Reserve and central banks in Europe and Japan. The Fed is widely expected to raise interest rates in the coming year as the steady economic recovery in the U.S. continues.
Investors are now expecting preliminary data on euro area inflation for December, which is due for release on Wednesday. Economists have forecast at 0.1% decline in inflation, which would be the first drop since 2009. The ECB targets inflation of close to but just under 2%.
EUR/USD hit an intra-day low of 1.1886 following the release of the German data, not far from overnight lows of 1.1858, the weakest level since February 2006.
The single currency has weakened broadly since ECB President Mario Draghi said Friday the risk of it not fulfilling its mandate of price stability is higher now than six months ago.
The remarks indicated that the likelihood of full blown quantitative easing has increased ahead of the ECB’s meeting on January 22.
The euro was also pressured lower by uncertainty over Greece’s possible exit from the euro zone if left-wing anti-austerity party Syriza win elections due to be held later this month.
The euro extended losses against the yen, with EUR/JPY dropping 1.17% to a seven-week low of 142.92, as Investing.com reports.
