While the euro fell, the power of his words may be limited by signals from the European Central Bank that it isn’t prepared to favor a weaker currency. ECB President Mario Draghi last week said he has no goal for the exchange rate, although he noted the euro was trading at its long-run average.
The euro exchange rate is “not a major concern,” ECB council member Ewald Nowotny told reporters in Vienna today.
“For us, the exchange rate of the euro is one variable to be factored in, but isn’t a goal in itself,” ECB Executive Board member Peter Praet told La Libre Belgique newspaper in an interview published today.
Still, economists at Goldman Sachs Group Inc. and Citigroup Inc. said in reports today that a further strengthening of the euro could eventually help trigger an interest-rate cut from the ECB.
In Norway, Finance Minister Sigbjoern Johnsen said in an interview that a strong krone challenges the economy and that the government must ease pressure on the Norges Bank to avoid krone strengthening by conducting a “tight” fiscal policy. Norges Bank Deputy Governor Jan F. Qvigstad said yesterday that if the krone remains strong until policy makers meet in March, “that of course has an obvious effect on the interest rate.”
That pushed the currency, which has emerged as a haven from the European crisis, to its lowest level in more than two months versus the euro.
Meantime, Riksbank Deputy Governor Lars E. O. Svensson said today that a strong Swedish krona would be “yet another reason” to lower borrowing costs. He last month argued for a deeper cut than the 0.25 percentage point move to 1% that colleagues supported.
“It’s obvious that the economy would manage better in this very difficult, weak economy with a lower rate and a weaker krona,” Svensson said in Stockholm.
Elsewhere, Bank of Korea Governor Kim Choong Soo said Jan. 14 that a steep drop in the yen could provoke an “active response to minimize any negative impacts on exports and investor confidence.” Vice Finance Minister Shin Je Yoon said today that South Korea wants the G-20 talks in Moscow to focus on adverse effects of monetary easing in the U.S., Europe and Japan.
If Japan continues to pursue a softer currency, reciprocal devaluations would hurt the global economy, Russia’s Ulyukayev said today. That echoes recent concern from other international policy chiefs.
Federal Reserve Bank of St. Louis President James Bullard said Jan. 10 that he’s “a little disturbed” by Japan’s stance and the risk of “beggar-thy-neighbor” policies.
Reserve Bank of Australia Governor Glenn Stevens said Dec. 12 that there is a “degree of disquiet in the global policy- making community,” while Bank of England Governor Mervyn King said Dec. 10 that he worried “we’ll see the growth of actively managed exchange rates.”