The euro's trade-weighted currency index hit its highest in 6 years last month - gaining more than 7% from February's lows and providing a serious headwind to the European Central Bank's efforts to avoid a worrying bout of deflation in the bloc as the world tries to recover from this year's pandemic shock. As with so many times in the past 21 years of the single currency, the ECB typically registers its displeasure at adverse exchange rate moves verbally at first. As the ECB prepares for its Sept. 10 policy meeting, its chief economist Philip Lane insisted this week that the exchange rate does "matter" to the central bank's deliberations, even if it has no target as such. Gentle compared to prior verbal interventions perhaps, but seen as a shot across the bow nonetheless and maybe the first of many.
Chart by Ritvik Carvalho and commentary by Mike Dolan.
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