The euro has plunged and markets have spiked after European Central Bank president Mario Draghi said more stimulus would be needed if the economic outlook failed to improve.
Draghi suggested the EBC could cut interest rates or expand its bond-buying programme in a bid to reinvigorate the ailing Eurozone economy.
A growth slowdown has plagued the single currency bloc for months, intensified by the ongoing global trade war.
US President Donald Trump could also make matters worse for the EU, having threatened to impose auto tariffs on the bloc.
The euro plummeted 0.27 per cent against the dollar to $1.118 following Draghi’s comments, while European stock markets were buoyed by the prospect of further stimulus with the German DAX and French CAC both up following early losses.
Inflation has been under the ECB’s target of just under two per cent since 2013, and Draghi said it may soon be time to act.
“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Draghi said at the ECB’s annual conference in Portugal.
“[We] will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future,” he added.
Read more: D-Day for the ECB as pressure mounts to act
Draghi will be replaced as ECB president in October but hinted the stimulus could kick in as soon as its next policy meeting in July, saying policymakers would consider the issue “in the coming weeks”
IG analyst Chris Beauchamp said: “Despite only having a few months left to his tenure, the head of the ECB has handed his successor a firmly dovish bias, as he leaves the door open to more QE and renewed negative rates at the ECB in order to try once again to kick-start the eurozone economy.