ECB Stimulus Bets Lift Stocks, Weigh on Euro

European stocks were trading at three-month highs on Monday, while the euro weakened against the dollar as investors prepared for the European Central Bank (ECB) to expand its stimulus program later this week.

European markets were trading in positive territory after weakening on Friday, with all of the major averages reporting gains. Germany’s DAX Index climbed 0.9% in intraday trade. The CAC 40 Index in Paris and Ibex 35 in Madrid each rallied 0.6%. London’s FTSE 100 Index was up 0.1%.

The pan-European STOXX 600 Index also advanced 0.4%.

Meanwhile, the euro declined further against the US dollar and was on track for its worst month since March. The EUR/USD exchange rate fell 0.2% to 1.0577 after touching a session low of 1.0561. With Monday’s loss, the EUR/USD has declined 3.6% over the past four weeks.

Investors are awaiting the ECB monetary policy meetings on Thursday, where policymakers are expected to ramp up their stimulus program. According to analysts, this includes expanding the size and scope of the ECB’s € 1.1 trillion stimulus program, as well as lowering the already negative deposit rate.

ECB President Mario Draghi has stated on several occasions that the bank was ready to ease monetary policy further to help the struggling euro area economy. Eurozone growth slowed to 0.3% in the third quarter from 0.4%, official data revealed earlier this month. Meanwhile, headline inflation remains close to zero.

German inflation improved slightly in November, the Federal Statistics Office reported on Monday. The consumer price index (CPI) rose 0.3% in the 12 months through November, up from 0.2% the previous month. In EU harmonized terms, German inflation stood at 0.1% annually, up from zero in October.

The European Commission is scheduled to produce euro-wide inflation on Wednesday.

In commodities, oil prices recovered after declining earlier in the day, as the markets looked ahead to Friday’s OPEC meetings. The Organization of the Petroleum Exporting Countries (OPEC) – a 12-nation cartel responsible for the bulk of the world’s oil production – is determined to keep output levels higher despite plunging prices.

West Texas Intermediate (WTI) for January delivery climbed 38 cents or 0.9% to $42.09 a barrel on the New York Mercantile Exchange. Brent crude, the international benchmark, advanced 47 cents or 1.1% to $45.33 a barrel on ICE Futures Europe.