The euro slid to a one-month low Thursday amid some sluggish growth data from the currency bloc, which fueled growing expectations of further easing from the European Central Bank.
European stocks gave up early gains, as hopes that the euro-area economy accelerated in the first quarter of 2014 were dashed.
Gross domestic product grew 0.2% in the euro zone during the first quarter compared with the final three months of 2013, the European Union's statistics agency Eurostat said Thursday, well short of the 0.4% quarterly gain expected by economists.
The disappointing data followed comments from ECB Vice President Vitor Constancio that the central bank is ready to take action if warranted, adding to the persistent drumbeat of dovish commentary from the ECB. Many analysts now expect the central bank to cut interest rates at its June meeting, while some are calling for more radical action—including a program of asset purchases to stimulate the economy and drive up anemic rates of inflation.
Eurostat also confirmed Thursday that annual consumer-price growth was just 0.7% last month—well below the ECB's target of slightly under 2%.
"Quantitative easing from the ECB to me seems inevitable given recent data. It seems that the region that needs the most monetary stimulus is doing the least," said Neil Williams, chief economist at Hermès Fund Managers.
The euro, which had dropped following Mr. Constancio's comments, hovered near a one-month low against the dollar of $1.3660.
"The market is clearly becoming convinced that the ECB is ready to act in June," said Steven Saywell, global head of foreign-exchange strategy at BNP Paribas. BNP.FR -1.00%
"Poor growth numbers add to the case for more stimulus, but this is all about inflation," which Mr. Constancio said is set to remain low for a prolonged period, he added.
The GDP data highlighted a growing gulf in the euro area. While the German economy grew by 0.8%--the most rapid expansion since the first quarter of 2011—the French economy stagnated, Italy recorded a slight contraction, and the Netherlands saw a drop.
Italy's stock market lagged behind, with the FTSE MIB index 1.2% lower midmorning. France's CAC-40 was down 0.2%. Elsewhere, markets were little-changed as investors weighed stimulus hopes against poor data.
The Stoxx Europe 600 index was 0.1% lower. The benchmark remains close to six-year highs hit in recent days amid growing hopes of ECB action.
Those hopes extended the recent rally in euro-zone bonds. Italy's 10-year bond yield sank to a record low of 2.88%. Yields fall as prices rise.
Outside the euro zone, the U.K.'s FTSE 100 stock index was steady close to the 14-year high reached Wednesday.
U.S. stock futures pointed to a steady start, with the S&P 500 indicated to open flat. Changes in futures don't always accurately predict market moves after the opening bell.
In commodities markets, gold fell 0.2% to $1,303.80 an ounce, while Brent crude oil added 0.1% to trade at $110.25 a barrel.
