Euro Crumbles Ahead Of ECB Meeting

With the European Central Bank meeting coming up on Thursday, investors are weighing the possibility of a rate cut or deposit rate reduction.

Recent inflation data coupled with soaring unemployment has built a strong case for the bank to take action and preserve the region's modest recovery.

Uncertainty in the US pushed the euro to new highs over the past weeks, however the common currency fell to 1.3485 at 5:30 GMT on Monday morning after the US Federal Reserve hinted that a taper could come sooner than analysts were expecting. With the common currency losing ground, odds are that the ECB will maintain its current policy and take action at its December meeting.

According to CNBC, for the most part, investors are expecting ECB President Mario Draghi to provide forward guidance following the meeting and insinuate that further easing will come in the future. Data last week showed that the bloc's inflation had fallen to 0.7 percent, well below the bank's 2 percent target. With this in mind, the ECB will likely revise its 2014 inflation forecast to 1 percent or below from its current estimate of 1.3 percent.

If the ECB does decide to make a move at Thursday's meeting, the bank will have several options. Cutting its main interest rate would likely have the largest impact on markets, but the bank could also consider cutting its deposit rate to below zero.

With unemployment stuck at 12.2 percent and inflation on the decline, many see a strong case for the bank to step in. However not all of the data from the bloc has been negative. The bank's lending survey showed that credit constraints were likely to ease and data from bailout countries indicated that they were turning a corner and heading for growth.

For this reason, many believe the bank will hold off on a rate cut until December.

BY Laura Brodbeck