The cloud of German political uncertainty had the silver lining of a weaker Euro on Monday., which could help to soar up inflation.
The currency lost as much as 0,5% in early Asian trading. That is still minuscule given the 13% appreciation of the Euro against the dollar since January 2017. But, for the European Central Bank, this could a good start.
The surge in the value of the Euro against the dollar has made it harder for the European Central Bank to reach the 2% inflation policy target. The dollar’s depreciation has meant that a number of international dollar-denominated commodities, including oil and gas, have become cheaper.
In an address to the European Parliament’s Economic and Monetary Affairs Committee on Monday, ECB President Mario Draghi was expressing confidence that inflation will rebound. On the one hand, the Eurozone continues to create jobs and increase demand. On the other, Frankfurt may now see an end to imported deflation, which also erodes the competitiveness of European exports.
"Overall, we are becoming more confident that inflation will eventually head to levels in line with our inflation aim,” Draghi said.
Currently, inflation stands at 1.5%.
Political volatility may further deflate the value of the Euro, as Germany enters what appears to be a prolonged, tedious, and uncertain phase of political negotiation for the formation of the next government. From taxes to energy policy and from Eurozone reforms to immigration policy, there will be no easy item on the negotiation agenda.
That political volatility will be complemented by the scheduled Catalan referendum on October 1st and the forthcoming Italian elections.
https://www.neweurope.eu/article/political-volatility-weakens-euro-may-good-news/
