ECB addresses stronger euro

The European Central Bank said it discussed the recent appreciation of the euro at its policy meeting on Thursday and will “carefully monitor” the exchange rate going forward. The euro hit a 1-week high of $1.1902 during the press conference following the policy decision. It has risen over 5% against the the U.S. dollar since the start of July and analysts have questioned whether this could prompt further monetary easing by the ECB. A stronger currency makes imports cheaper, hitting euro zone exporters and tightening financial conditions for the wider economy.

“The Governing Council discussed the appreciation of the euro, but as you know we don’t target the exchange rate,” ECB President Christine Lagarde said in a press conference Thursday. The ECB’s mandate is to ensure price stability, however, big swings in the exchange rates could impact inflation. As a result, Lagarde added that the ECB will “have to monitor carefully such matter.”

The euro also got a boost Thursday when Lagarde announced a “strong” economic rebound in the euro area. The central bank revised up its growth forecast slightly for 2020. Gross domestic product is seen now dropping by 8% this year, from a June estimate -8.7%. For 2021, the ECB expects GDP to grow by 5% and by 3.2% in the year after that. Against this backdrop, the ECB decided Thursday to keep its interest rates and coronavirus-stimulus.

ECB addresses stronger euro, says it will ‘carefully monitor’ exchange rate, CNBC, Sep 10