Comments made by European Central Bank governing council member Ewald Nowotny and reported by MNI have sent the euro on a tear this morning.
According to MNI, Nowotny said that while he doesn’t welcome the recent appreciation in the euro, policymakers “have to live with” it, as ECB does not have any tools to combat it.
Nowotny said there was no realistic prospect of the ECB lowering its benchmark refinancing rate or deposit rate.
The euro is trading just north of $US1.38, versus levels closer to $US1.3750 before Nowotny’s comments hit the tape.
The currency has risen 8% against the U.S. dollar since July 9, when selling induced by Federal Reserve chairman Ben Bernanke’s June 19 press conference — in which he hinted at tapering quantitative easing, causing strength in the dollar — culminated.
Now, the strength of the euro has become one of the hottest topics on Wall Street.
Société Générale global strategist Kit Juckes says the reason forecasters have been caught off guard by the move is that “we didn’t expect that the market would be more hawkish about ECB than Fed policy at a time when the euro area economy is barely growing, nor did we expect to see the endless grind of Spanish bond out-performance go quite this far.”
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