Will European Central Bank Ease Policy in Wake of Weak GDP Figures?
NEW YORK (TheStreet) -- Last week, I asked the question, "What Will Happen to the Euro When the Eurozone GDP Numbers Come Out?" Well, after waiting a couple of days, we find out that the answer is that the value of the euro drifted a little lower, but nothing dramatic happened.
The day before the new figures were announced by the European Central Bank, the euro closed at $1.3367. The day the numbers were released, the euro closed at $1.3376. Last Friday the euro closed at $1.3392, and yesterday it closed at $1.3346.
So what do investors need to know?
Read More: 10 Stocks Carl Icahn Loves in 2014
The most notable thing that happened was that the 10-year German bund dropped below 1.00% for a brief time, taking in the information that perhaps the German economy was weaker than had been anticipated. Yesterday, the yield on this issue closed at 1.02%. At the start of this month, the 10-year had been trading around 1.15%.
All in all, nothing much has really taken place in the market up to this point in time.
It appears that investors were not surprised by the GDP numbers announced -- the numbers were pretty much what they expected. The outlook for the future is for some pickup in the economies of the eurozone through the end of the year, but nothing really spectacular.
Furthermore, investors see no surprises coming from the Federal Reserve system, which is winding down its latest version of quantitative easing -- it is on track to finish up in October. Investors are thinking that the Fed will then operate in a way that will maintain calm markets. Nothing has really changed to alter the relative value of the two currencies.
If this is the case, then investors seem to be saying that the eurozone will continue to grow at a slower rate than the U.S. economy. But there will not be much else happening to make them believe that the euro will fall much further in value against the U.S. dollar.
However, a loud cry could be heard calling for the European Central Bank to step up now and introduce some form of quantitative easing.
This, it seems to me, is the uncertainty now hangs over the market.
Will the ECB step in and engage in some kind of quantitative easing to drive down the value of the euro against the dollar and, hopefully, get the eurozone economies to start growing again?
So far, Mario Draghi, the president of the ECB, has maintained a pretty tight discipline on monetary policy. He has overseen a reduction in one of the bank's policy rates into negative territory, but has firmly resisted going any further in the direction of greater ease.
But the pressure is building up. The issue now becomes how long he can hold out.