Investing.com

Investing.com - The euro was little changed near three-month lows against the dollar on Monday after European Central Bank President Mario Draghi said the bank saw a risk of a deflationary cycle taking hold in the euro zone, the latest indication that the bank could ease monetary policy at its upcoming meeting next week.



EUR/USD hit lows of 1.3615, the weakest since February 13 and was last at 1.3641.



The pair is likely to find support at 1.3575 and resistance at 1.3658, Friday’s high.



Draghi said the ECB is ready to act should it see signs of a negative inflation spiral taking hold, and indicated that the bank is weighing a wide range of policy options, including interest rate cuts, and liquidity injections or broad-based asset purchases to help shore up the fragile recovery in the euro area.



"What we need to be particularly watchful for at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries," Draghi said.



"There is a risk that disinflationary expectations take hold," prompting consumers and businesses to delay spending. "We are not resigned to allowing inflation to remain too low for too long," he added.



The comments were made at the new ECB annual conference in Sintra, Portugal.



The euro has weakened broadly against the other major currencies, falling more than 2% against the dollar since the ECB indicated at its May 8 meeting that it is comfortable with easing monetary policy as soon as its next meeting in June.



The annual rate of euro zone inflation was 0.7% in April, well below the ECB''s target of close to but just below 2%.



The euro was close to 17-month lows against the pound, with EUR/GBP at 0.8097, after falling to lows of 0.8080 on Friday, the weakest level since December 2012.



The euro was also steady against the yen, with EUR/JPY at 139.01, not far from the more than three-month trough of 138.13 struck last Wednesday.





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