The shared currency of the European Union is likely to be facing some significant movement during the coming months, according to published reports.
The 18-nation monetary unit has pushed to its highest rate since 2011. The region's gross domestic product is advancing at a deliberate pace but some companies are worrying about what sort of impact the strong euro is having on shipments from the region to various points around the world.
Mario Draghi, chief of the European Central Bank, said on Thursday in Austria that the monetary unit's exchange rate is of key importance. Interest rates' futures adjustments by the body he leads might accommodate the kind of growth that the region is pursuing. The region has bounced back from the depths of a profound scourge that dragged down the monetary unit's value.
"The only thing Draghi did not say was that the euro is 'brutally high,'" states an email authored by global head of Group of 10 currency strategy Steven Englander with Citigroup Inc. in New York, according to Bloomberg. "There have been an ascending series of comments from ECB officials soft-circling the (euro) as a concern."
Following the Draghi speech in Vienna, the euro was up about 0.2 percent against the world's reserve currency on Friday.
Strong performance thus far this year
Thus far this year, the euro is up about 1.1 percent against the U.S. dollar, marking its strongest start to a year since 2011.
A Bloomberg-administered poll indicated 49 percent likelihood of the shared currency pushing to $1.45 against the greenback some time this year. By contrast, the common currency has a 34 percent chance of dropping to $1.30 against its cross-Atlantic rival.
"The ECB is reacting in part to the trend in the euro," senior currency strategist Sebastien Galy with Societe Generale SA in New York told the news source on Thursday, noting "that while $1.40 means little to an economist, it does to a lot of corporates complaining to their central banks."
Inflation, exports draw attention
But concerns are developing about two key issues.
The Wall Street Journal reports some policy makers are raising their eyes about how the strong euro is dragging down inflation. The inflation rate presently is lower than the target of the central bank. For the past several months, the inflation rate has been lower than 2 percent. For that reason, the central bank might be driving toward implementing policy to water down the monetary unit.
And as the euro increases in value, the price of exports goes down. That, in turn, pinches the inflation index, representing another motive for the central bank to act.
"The fact that he's said this is quite a departure from where they've been on [euro strength] for almost forever," analyst Lorcan Roche Kelly with Agenda Research in Ireland told The Wall Street Journal. "In the history of the ECB it's almost unprecedented."
What the central bank chief said in the Austrian capital represents an escalation of what he has been alluding to for the past few months. The central bank appears inclined to embark on monetary stimulus measures.
Russia, Ukraine debacle impacts value
Reuters reports the DAX, Germany's primary index, endured its sharpest weekly fall since the peak of the sovereign debt crisis in 2012. Germany hosts the most powerful economy in the euro zone.
Many constituents in Germany are exposed to risk in Russia, which is key at this time considering the referendum scheduled for this weekend. Voters are slated to cast ballots as to whether Crimea will secede from Ukraine and be annexed by Russia.
"Obviously Russia will not back down so it all points to an escalation," fund manager Viktor Szabo with Aberdeen Asset Management told Reuters on Friday.
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