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European Central Bank (ECB) president Mario Draghi warned on lower inflation in Euro Zone and reiterated not only ECB's ability and determination to act, gave a clear indication when that might happen. Governing council will be reviewing and possibly readjust monetary policy in March.
However, Euro's move show market participants remain skeptics after December disappointment from European Central Bank (ECB). We are among them. Though we don't doubt ECB's ability and determination to act, we feel hawks in ECB are not as weak as we had originally though. Key focus for us is comments from hawkish Bundesbank chief Jens Weidmann. We will be keeping close watch on him for hints.
However, ECB's Survey of Professional Forecaster (SPF) suggests that possibility is high ECB will act further. According to SPF, inflation outlook for Euro zone is bleaker. In 2016, Euro Zone inflation likely to be 0.7%, which is a downward revision of 0.3% and inflation will be 1.4% in 2017, which is again 0.1% downward revision.
Key question is, whether current turmoil and lower inflation forecast would be enough for ECB hawks to ease their stance.
Euro is currently trading at 1.082 against Dollar.
