Euro Heads for Weekly Drop as Inflation Data Spur Stimulus Bets

  • Inflation rates for February in France, Spain fall short
  • Gauge of inflation outlook drops to record-low close this week

The euro headed for a second weekly decline as inflation data from Europe’s major economies underscored the challenges ahead for European Central Bank President Mario Draghi before the institution’s next policy meeting in March.

The shared currency depreciated versus most of its major peers since Feb. 19, held down on Friday by a report that France’s consumer prices fell at an annual 0.1 percent in February, versus a median estimate of a 0.1 percent gain in a Bloomberg survey of economists. Spanish consumer prices dropped the most in five months in February, and steeper than predicted. In Germany, the European Union-harmonized rate of inflation slowed to minus 0.2 percent compared with a prediction for no change in a Bloomberg survey.

The euro was little changed at $1.1008 as of 8:06 a.m. New York time, headed for a weekly decline of 1.1 percent. The 19-member currency fell 0.1 percent to 78.81 pence, paring this week’s gain versus the pound to 2 percent.

“Inflation data out of France, Spain and Germany was pretty weak, suggesting disinflation pressure is mounting ahead of the ECB meeting,” said Dirk Aufderheide, chief currency strategist at Deutsche Asset & Wealth Management Investment GmbH in Frankfurt.

The single currency’s decline came as Group-of-20 policy makers gathered in Shanghai to share concerns over slowing global growth and look for measures to boost inflation and revive output.

The euro is also being hurt by speculation the ECB will expand quantitative easing at its policy meeting on March 10 to help avert deflation.

The five-year, five-year forward inflation-swap rate, which ECB President Mario Draghi has cited in the past to justify monetary easing, closed Thursday at 1.37 percent, the lowest since Bloomberg started tracking the data in 2004, and still far from the ECB’s goal of just under 2 percent.

“The five-year, five-year inflation-expectations swap-rate index is a very important measure for the ECB,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “It’s falling like a stone. While many Council members are opposing measures they regard as too focused on fiscal aspects, even the hawks agree to fight deflation risks -- which many see materializing if inflation expectations drop.”

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