In the account of September 9-10 monetary policy meeting, ECB attributed the recent appreciation in Euro exchange to two main drivers. The first and most important one was “substantial improvement in global risk sentiment” and “reversal of previous safe-have flows” into the US. The second was “likely related to monetary policies implemented in the United States and the euro area”. Looking ahead “market positioning remained tilted towards further euro appreciation”.
Members considered that a further appreciation of Euro “constituted a risk to both growth and inflation”. A “significant impact of the exchange rate appreciation on euro area inflation had been included in the September 2020 ECB staff projections.” Nevertheless, an argument was made that the ultimate impact of a “one-off adjustment” of the exchange rate would be seen in the “level of prices” rather than in “rate of inflation”. The economic impacts were also “difficult to reliably disentangle”.
