The Euro dropped to a fresh 11-year low of 1.1088 against the US dollar this week following news that the anti-austerity Syriza Party will lead a new coalition Greek government. Senior ECB figures have warned incoming politicians from the left-wing movement that there is little support for a debt write off among EU policy makers.
UK GDP growth slowed to 0.5% in the final quarter of 2014, but annual growth was at its highest level since 2007 according to new figures from the Office for National Statistics, at 2.6%. The dominant services sector remains buoyant while the contraction has taken place in industries like construction, mining and energy supply. The fall in the oil price is expected to boost consumer spending. But analysts and the ONS have both warned that growth may not pick up until May due to mounting uncertainties around the general election.
The Eurozone has seen a rise in the level of deflation during January, as prices dropped to a level 0.6% lower than a year ago. This is against analysts’ expectations, with a Reuters poll suggesting that consensus forecasts were looking for 0.5% inflation. The figures vindicate the ECB’s decision to embark on QE. That said, QE will not raise inflation in the coming months. Unless oil prices stage a quick recovery, the energy component will keep headline inflation low in the months ahead. But the key number to watch in the coming months is core inflation. Any further falls may raise concerns that QE has come too late to stave off deflation.
The Russian rouble has fallen further against the US dollar after the country’s central bank cut interest rates from 17% to 15% just weeks after a 650 basis point increase in base rates. The bank said that it was worried about consumer price growth and a cooling economy in a statement that accompanied the decision. Western sanctions mean that Russian financial firms are locked out of international markets and the fall in oil prices over recent months is also impacting the economy.