This week has seen the euro hit a nine year trough after concerns over the global economy and borrowing costs in Germany and Australia reached all-time lows.
This week has seen the euro hit a nine-year trough after concerns over global economy and government borrowing costs in Japan, Germany and Australia reached all-time lows, as oil fell 10% in just two days and investors wrestled with the risk of global deflation.
The figures are expected to show the first annual fall in consumer prices since 2009, piling pressure on the European Central Bank to re-launch quantitative easing at its next policy meeting later this month. “We expect the ECB to announce a sovereign QE programme on 22 January, and the first purchases to probably start in the following week” said Citi economist Guillaume Menuet.
A steadying in the price of oil also strengthened investor risk aversion and helped nudge benchmark U.S. and European government bonds off recent lows, while German data kept the euro near its nine-year low.
Not helping the euro was a report Germany was making contingency plans for the possible departure of Greece from the euro zone. Angela Merkel made it clear that she wanted Greece to stay in the Eurozone. She also stated she had no doubts whatsoever that it would be brought to a successful conclusion, but stressed the necessity of Athens to respect its commitments to its bailout program if it wanted its partners to show solidarity.
As a result, investors are willing to accept less compensation for inflation risk over time, so pulling down yields on even the longest dated bonds.