Euro Strong Ahead Of ECB Meeting
Benzinga | Oct 01, 2013 09:19AM ET
The euro strengthened against the dollar on Tuesday after the US government failed to come to a decision regarding an emergency spending bill and began its first shutdown in 17 years.
Democrats and Republicans were unable to agree on the bill, mostly because of disagreements about Obamacare. Now, the US Federal government will shut down and force more than 700,000 people to take unpaid leave.
The European Central Bank is set to meet on Wednesday this week as Thursday, its normal meeting day, is a public holiday in Germany. Reuters reported that data showed that eurozone inflation dropped more than expected in September, which means the ECB is likely to maintain its accommodative monetary policy.
Consumer prices fell to 1.1 percent for the eurozone as a whole, below expectations o 1.2 percent. The ECB has an inflation target of 2 percent, and had forecast that inflation would fall between 1.4 percent and 1.6 percent for the remainder of 2013. The current drop in inflation is likely to prompt the bank to reiterate its forward guidance to keep interest rates low for an extended period.
Although the eurozone was able to break out of its longest ever recession last quarter, several economies within the bloc are still struggling with record high jobless figures against a backdrop of government spending cuts. Countries like Spain and Italy have seen inflation fall to its lowest level in years, while Greece struggles with deflation.
The inflation data on Monday showed that consumer price inflation in Spain was at its lowest in nearly four years. In Germany, inflation was down to 1.4 percent in September. Although the region has seen a modest recovery, consumers are still cautious to spend as debt levels are still elevated.
BY Laura Brodbeck
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