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Afp

Strong euro 'source of uncertainty' for ECB

By AFP
media Euro strength is undermining the ECB's efforts to rekindle inflation AFP

A strong euro is a "source of uncertainty" for the European Central Bank as it weighs the right moment to exit its massive support for the economy, a senior official said Tuesday.

"The recent evolution of the exchange rate is a source of uncertainty which requires monitoring," Bank of France governor and ECB governing council member Francois Villeroy de Galhau told German financial newspaper Boersen-Zeitung.

In recent days, the European single currency has climbed above $1.22 -- around 15 dollar cents higher than last January's level.

That could be a problem "with regard to its possible downward effects on imported prices," Villeroy said.

The ECB is still offering massive support to the eurozone economy, buying 30 billion euros ($37 billion) of government and corporate bonds per month and holding interest rates at record lows in a bid to stoke growth and drive up inflation.

Lower prices for imports thanks to the strong euro could brake inflation, frustrating policymakers' efforts to push price growth to their target of just below 2.0 percent.

There is little ECB chiefs can do to hold down the price of the euro, as the gathering strength of the eurozone economy makes it increasingly clear that an end to bond-buying and ultimately a hike in interest rates are on the horizon.

The euro's run of gains against the dollar picked up from June, when ECB president Mario Draghi gave an upbeat speech about economic recovery in the eurozone that financial markets took as a sign policy change was coming.

"Recent volatility in the exchange rate represents a source of uncertainty which requires monitoring," a rueful Draghi said in September.

But for now "the stronger euro does not yet represent a threat to the inflation outlook," economist Frederik Ducrozet of Geneva-based asset manager Pictet judged Tuesday.

A negative impact on inflation would only make itself felt if the 19-nation currency approached $1.30, he said.

 
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