Schmerzgrenze der EZBler scheint aktuell bei EURUSD 1,35 zu liegen

verfasst von kingsolomon, 18.12.2003, 11:47

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FRANKFURT (MktNews) - Conversations with well-placed ECB sources have revealed differing degrees of concern with the euro's appreciation, but officials agreed that the stronger currency could well delay the need for any monetary tightening.

Insiders told MNI that to this point the ECB has not discussed using intervention to calm the euro's rise. Several officials said they did not expect the ECB would consider intervening unless the euro-dollar rate rose to around $1.35, near the all-time highs of the"synthetic" euro prior to 1999.

In any case, the ECB would not act alone during an upward trend and there is no sign yet that U.S. authorities would be interested in participating, the bankers said.

Despite the risks the stronger euro might pose for eurozone exports, several officials stressed that the stronger euro was helping hold down inflation. Thus, if sustained, the currency's strengthen would tend to push the timing of a rate hike further into the future.

Indeed, several sources said that, all else being equal, the stronger euro might allow the ECB to keep rates on hold until early 2005.

However, they cautioned that the exchange rate is just one of the many factors the ECB considers in setting its monetary policy.

One senior source said the ECB's Governing Council is starting to get uneasy at the euro's rapid rise -- and the lack of clear-cut solutions -- given the fact that the central bank is still not entirely convinced that the eurozone economic recovery will prove to be solid.

The Council has been working on the premise that the long-term equilibrium range for the euro is $1.05 to $1.20. While a rate either side of that range is not a cause for alarm in itself, current concerns stem from the speed of the push to $1.22, and the possibility that this could continue without a marked retracement.

The source said that if the push through $1.22 is sustained and there appears appetite for another surge upwards,"everybody will start to get uncomfortable."

Asked what policy responses would follow a continued euro rise, the source said,"it's too early now, we can't say." But he added the first step would be verbal intervention.

The ECB does not have a specific level that will trigger policy responses, it is still making"simulations" of the effects of different exchange rate moves on growth and inflation.

A second senior source was more sanguine about the euro's rise.

"The European Central Bank is not concerned by the strength of the currency and has no plans for intervening. This issue has not been raised," he said categorically, noting that the latest data show an increase in eurozone exports, which is expected to continue in 2004 despite the rise in the euro.

"The current exchange rate with the dollar is within our expectations and I cannot predict any discussion of intervention unless we see the exchange rate rising above $1.35."

This official went on to note that the strong euro was helping to dampen eurozone inflation, particularly given the continued high price of oil, which could give the ECB more leeway to leave rates on hold.

"I expect that interest rates in the eurozone will remain at current levels until early 2005," said the source."Interest rates could change sooner if we have surprises like a sharp rise of inflation or a sharp drop of the euro. Of course, one precondition for this is that deficits will drop below 3% in 2005 as agreed by Ecofin."

In the view of a third eurozone central banker, the current euro-dollar rate"doesn't bother" the members of the ECB Council, though the central bank remains uneasily aware of the risk of a sudden dollar plunge.

This official commented that the continued signs that the eurozone economy is heading for recovery lies behind officials' still sanguine approach to recent currency developments.

The ECB has noted with some satisfaction that while the euro's rise is undoubtedly braking the recovery, it shows no sign of derailing it. And at the same time the stronger currency dampens price pressures and therefore delays the need to hike rates, the official said.

If things progress as expected, there is unlikely to be any need to tighten policy until well into the second half of next year, and rates could easily stay on hold right into 2005, the source argued.

The euro can be expected to continue to appreciate, the official said, noting that markets have continued to buy the currency this week despite two week-end events that should theoretically have been clearly dollar-positive: the capture of Saddam Hussein and the failure of the Brussels Summit intended to sign off on a new EU constitution.

The source pointed out that prior to monetary union, in nominal terms the"synthetic euro" reached or exceeded current levels in 1988 and 1990-91, while in 1995-96 it was worth around $1.40. And in real effective (or trade weighted) terms the euro was then probably even stronger.

Until the euro nears $1.35, and provided its appreciation remains"orderly," the ECB is unlikely to take any action, the official suggested.

If the $1.35 area is approached then the central bank's rhetoric is likely to change. And if necessary, at some stage thereafter, intervention would inevitably be considered.

The chances of successful intervention would naturally rise if the Fed were to participate, but judging from the current attitude of the US authorities, such a prospect remains"rather a long way off," this source said.

The first source agreed that the ECB would not consider acting alone while a solid upside euro trend is in place. And there is absolutely no sign yet that the U.S. would consider joint action.

"To be effective, you'd have to have the two major central banks involved -- and even better Japan. And at the moment, the U.S. attitude is one of benign neglect," said the ECB source."I don't see U.S. support at the moment."

This first source also noted that if the U.S. tightens monetary policy next year, it would help the ECB by making dollar assets more attractive and slowing consumer demand. Likewise Asian currency appreciations -- even if they are moderate -- could help take the pressure off the euro.

An ECB interest rate cut to combat euro strength is highly unlikely, at least for now, sources said.

The Council agrees a further easing would be very hard to justify in the light of the credit expansion in the eurozone -- and central bank fears of creating a liquidity bubble -- and given the ECB's displeasure at recent eurozone fiscal developments. If anything, the ECB's statement following last month's Ecofin decision was a warning that interest rates could rise next year. And a rate cut soon after that tough statement would send confusing signals, said one banker.

So a monetary easing, while not totally ruled out, is"not an option for now," said the first source.

Indeed ECB Governing Council member Christian Noyer suggested last week that small interest rate moves on either side of the Atlantic might have little impact on current exchange rate trends, though he did not exclude some dampening of the euro if the Federal Reserve were to tighten policy.

-- Frankfurt Newsroom +49 69 72 01 42: email: frankfurt@marketnews.com--

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gesamter Thread:

• Schmerzgrenze der EZBler scheint aktuell bei EURUSD 1,35 zu liegen - kingsolomon, 18.12.2003, 11:47
  • bitte nur einmal klicken ;-) (owT) - - Elli -, 18.12.2003, 11:58
    • Wieso nur einmal? - fridolin, 18.12.2003, 12:10
      • Weil der Beitrag zwei Mal kam - - Elli -, 18.12.2003, 12:16