ECB official warns on strength of euro

Lucy Harley-McKeown
·2 mins read
European Union banknotes and coin
On Friday, the currency had given up half of its gains for the year amid a surge of coronavirus cases in Europe. It closed at $1.1630. Photo: Getty

European Central Bank policymaker Ignazio Visco has warned that the recent strength the euro (EURUSD=X) has seen could trigger a reaction from officials if it continues to drag inflation away from its target.

Visco, Italy’s central bank governor, said the executive board was in agreement on the matter, according to a report from Reuters.

Speaking at an event in Trento, he said: "The euro's recent strengthening is worrying us because it generates further downward pressures on prices at a time when inflation is already low."

"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."

On Friday, the currency had given up half of its gains for the year amid a surge of coronavirus cases in Europe. It closed at $1.1630.

Markets will be watching this week as inflation data for the eurozone is released on Wednesday. The lack of inflation in the area — which turned negative last month — is not a new issue for the ECB.

Recently the rise of the euro added to a deflationary drag on the ECB’s attempts to try and hit its 2% inflation target.

In August annualised inflation slipped to -0.2%, a four-year low, the outlook for September does not look too promising with expectations that prices will fall even further, although staying above the record low of -0.6% hit in 2015.

FX traders will also have cause to watch how the euro fares against the pound (EURGBP=X), as fractious Brexit talks resume next week.

READ MORE: Markets to focus on Brexit talks, US presidential debate and UK final GDP