Lower Euro Zone Inflation Rate

A lower Euro Zone inflation rate may be the key to avoiding a renewed recession in the European Community. Borrowing rates have been driven up with uncertainty regarding bank stability and the ability of several nations to pay their sovereign debts. High borrowing costs have threatened to drive Greece, Spain, Italy, and other nations into bankruptcy. Not so long ago pundits were talking about a breakup of the European Union. Experts predict lower borrowing costs via the European Central bank as a result of the first lower Euro Zone inflation rate after five months of increases. The current annualized rate of inflation is 2.8 percent. The European Central Bank recently issued loans at 1% and it is expected that rates in the near future will be half that.

On news of a lower Euro Zone inflation rate the Euro fell three tenths of a percent and Euro Zone stocks slipped as well. Across the Atlantic ten year treasuries fell as well. Forex traders will watch both upside and downside movement of economic indicators in order to profitably anticipate movement of the Euro, USD, and other major currencies. The US economy is recovering as factory orders went up and there are signs of some life in the housing market, albeit at lower housing prices. With the interconnectedness of the economies of the world, there are many Forex scenarios. The Euro recently fell against nearly all of the sixteen currencies it trades against. This despite what looks like a solid start to resolving the European debt crisis.

As Europe adopts necessary austerity measures, it will begin to rein in its national debts. However, the austerity measures may bring on another recession which is largely why the Euro has fallen of late. The low Euro Zone inflation rate is a god send for the multiple struggling economies on the continent as it will reduce the cost of borrowing as the European Central Bank seeks to stabilize banks and nations while also stimulating the economy back into economic growth.

For the Forex trader interested in profiting from swings in the Euro the lower Euro Zone inflation rate is useful information. The austerity measures instituted across the continent may well drive the various economies into recession in the months ahead. This would most likely drive the Euro down. However, the long needed austerity measures will likely lead to a healthier EU economy in years to come which in turn will likely drive the Euro up. In the short term, traders will follow pronouncements of the European Central Bank and policy makers in the EU in order to profitably anticipate changes in monetary policy and their effects. The obvious other side of all this is that currency is traded in pairs. Pick an economy that is moving contrary to that of the EU and you will likely see dramatic and potentially profitable currency rate changes. Many may choose to trade options on their Euro puts and calls as effects of the lower Euro Zone inflation rate pay themselves out. By purchasing calls and puts in this area traders increase their investment leverage and reduce their risk.