Euro Value Rises 10% in Six Months... Lagarde Says "Will Monitor Closely"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The value of the euro has risen by 10% against the dollar in just half a year, prompting the European Central Bank (ECB) to keep a close watch. This is due to concerns that it could deal a blow to the Eurozone, which is facing economic recession and deflation worries amid the COVID-19 pandemic.

According to Bloomberg and other sources on the 10th (local time), ECB President Christine Lagarde stated at a press conference following the monetary policy meeting, "We discussed the appreciation of the euro at the meeting." This marks the first time since 2018 that the ECB has mentioned exchange rates in relation to monetary policy.

President Lagarde said, "As you know, exchange rates are not our policy target," but added, "However, we will carefully evaluate all incoming information, including exchange rate fluctuations, in relation to their impact on medium-term inflation forecasts."

The reason for Lagarde’s remarks is the recent sharp rise in the euro’s value. On that day, the euro exchange rate reached $1.1815 per euro, up 0.1% from the previous day, and it has increased by 10.6% compared to the recent low in March, significantly appreciating in value. On the 31st of last month, it hit $1.1936 per euro, the highest level since May 2018.

When the euro appreciates, import prices fall while export prices rise. As a result, economic recovery driven by export expansion slows down, and downward pressure on prices intensifies. This is a situation that cannot be overlooked, especially as the Eurozone’s consumer price inflation rate turned negative for the first time in four years in August.

At the monetary policy meeting that day, the ECB maintained the benchmark interest rate at the current 0%, and kept the deposit rate and marginal lending rate at -0.50% and 0.25%, respectively. Regarding the Eurozone’s gross domestic product (GDP), the ECB revised this year’s forecast upward from -8.7% to -8%. It also projected that the Eurozone’s GDP will grow by 5% in 2021 and 3.2% in 2022. For consumer price inflation, it forecast 0.3% for this year, and 1.0% and 1.3% for 2021 and 2022, respectively.

One foreign media outlet commented, "The ECB seems lukewarm about intervening in the euro exchange rate," adding, "While it showed interest in the appreciation situation, it appears less willing to fight it." The outlet also pointed out that there is a perception in the market that the ECB is less accommodative compared to the U.S. Federal Reserve (Fed) and reacts too slowly to negative news.

This content was produced with the assistance of AI translation services.