The most recent minutes of the ECB (European Central Bank) revealed some concerns around recent euro strength, sending the single currency to its month-to-date lows versus the US dollar. The euro is trading today at $1.18, up 13% from its recent low of $1.04 around the start of the new year.
Most noteworthy were comments where the minutes stated, “concerns were expressed about the risk of the exchange rate overshooting in the future,” and attributed the euro’s strength in recent weeks to political uncertainty in the UK and dampened interest rate hike expectations in the US. Those views raise the probability that the ECB will look to looser monetary policy in the future. A stronger currency tends to hurt exporters and help consumers in the country where the currency gains strength.
Europe has finally started to see stronger economic growth this year, particularly in the periphery nations of Portugal, Spain, and Italy where the deepest concerns had laid about the countries ability to handle their large debt loads.
The central bank report added that more flexibility is needed “in either direction,” a hint that rates may remain lower for longer even when the ECB starts to reduce its quantitative easing program. Expectations had been rising over the recent week that Mario Draghi would soon indicate a timetable of when the central bank would start to reduce quantitative easing, with his speech at next week’s Jackson Hole symposium the mooted date.
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