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Euro Hits Fresh 2-year Highs on ECB Caution

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Euro Hits Fresh 2-year Highs on ECB Caution

The euro surged to a two-year high against the US dollar after an official at the European Central Bank cautioned against ultra loose monetary policy. The ECB has been considering unconventional monetary policy tools in order to shore up inflation, which fell in October to the lowest level in four years.

According to ECB Governing Council member Jens Weidmann, low interest rates do not justify ultra loose monetary policy, something the ECB has been considering over the past several months.

“We must take care to raise interest rates again in a timely manner should inflation pressures build,” Weidmann reportedly said, according to Germany’s Bild newspaper.

The euro soared to a session high of 1.3882 US in Europe, before consolidating at 1.3803 US in the North American session. This represents a gain of 113 pips. The US dollar had found support Thursday after the Labor Department said 42,000 fewer Americans applied for unemployment benefits in the week ending December 21.

The euro advanced against its European rival, the British pound, but fell well short of the 0.84 GBP handle. The EURGBP pair advanced 20 pips to 0.8360, as European markets resumed trading after Christmas and Boxing Day.

Weidmann’s comments signal there is growing resistance to “arbitrary monetary easing” in Europe, despite the Eurozone’s ongoing economic and political struggles. Eurozone consumer inflation gained traction in November, easing concerns the 17-nation currency bloc would require an immediate kick-start to help stimulate growth. The Consumer Price Index increased at an annual rate of 0.9 percent in November, according to official estimates from the European Commission. The ECB seemingly exhausted its last conventional monetary policy tool in November when it cut interest rates to 0.25 percent.

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