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Euro strength may lead ECB to intervene

A 500 Euro

A recent strengthening in the euro’s exchange rate is a worry and will warrant a reaction from the European Central Bank if it drags inflation farther away from its goal, ECB policymaker Ignazio Visco said on Sunday.

Visco also denied ECB policymakers were divided on the matter and said his views echoed those of the Executive Board.

“The euro’s recent strengthening is worrying us because it generates further downward pressures on prices at a time when inflation is already low,” Visco, Italy’s central bank governor, told an event in Trento.

“The monetary policy implications are obvious: if the downward pressures jeopardise our price stability objective, we’ll have to intervene.

“If, however, opposite effects were to emerge, the measures we’ve already taken could suffice.”

The euro hit its highest level since mid-2018 on Sept. 1 at $1.2011, but has since given up half of its gains for the year, closing at $1.1630 on Friday amid a new surge in coronavirus cases in Europe.

Analysts say that the ECB’s statements are weakening the euro.

“We need to be wary of a weaker euro due to further unwinding of euro long positions. We have no shortage of concerns in Europe including rise of coronavirus infections in France and so on, attempts by European Central Bank policymakers to talk down the euro and the Brexit,” Makoto Noji, chief currency strategist at SMBC Nikko Securities said in report.

The dollar hovered near a two-month peak against at a basket of currencies on Monday as investors look to a barrage of upcoming economic data and political developments in the United States before making any fresh bets on the U.S. currency.

Data on U.S. currency futures positions released on Friday pointed to considerably more upside in the dollar’s recovery, with speculators holding a big net short position in the greenback.

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