Can the ECB weaken the euro?

While the ECB looks certain to implement further policy action at this week’s Governing Council meeting – probably in the form of an interest rate cut and measures to stimulate bank lending – this seems unlikely to have much of a downward effect on the euro.

Quantitative easing and direct intervention could bring the currency down more sharply, but it remains unclear whether the central bank is prepared to undertake such action with the necessary decisiveness to kick-start the recovery and eradicate deflation dangers.