European Central Bank President Mario Draghi said politicians should refrain from calling for intervention on the euro’s exchange rate.
Some comments made by people whose mandate “is not immediately related to monetary policy” are “inappropriate or fruitless,” Draghi said at a press conference in Madrid today after addressing Spain’s parliament. “They are inappropriate if they are meant to instruct the ECB.”
French President Francois Hollande has called for coordinated government action to steer the euro’s exchange rate, arguing that the currency’s 14-month peak against the dollar is making it harder for Europe’s recession-hit economy to recover. The ECB, the independent central bank for the 17 euro-area states, doesn’t officially target the exchange rate.
Arguing that fears of a global currency war “are way, way overdone,” Draghi said comments about targeting the euro’s level only serve to “increase the confusion around the exchange rate and frankly, we don’t need that.”
He cited the statement issued by the Group of Seven nations earlier today, saying it made no mention of a currency war.
The Bank of Japan announced last month it would double its inflation target to 2 percent in an attempt to end deflation, raising the prospect of further monetary easing and driving the yen down against its global counterparts. The euro reached a three-year high against the yen.
Europe’s single currency fell almost two cents on Feb. 7 when Draghi signaled he’s concerned the currency’s strength will hurt the nascent economy recovery and slow inflation too far below the bank’s 2 percent target.
“Both the nominal and real foreign exchange rates are about or at their long-term averages,” Draghi said today. “We want to ascertain if the appreciation is sustained and has the potential to change our assessment of the risks to price stability.”
Bundesbank President Jens Weidmann pushed the euro higher yesterday by saying the currency isn’t overvalued.
On Feb. 5, Hollande said government leaders should set a “medium-term objective” for the euro’s exchange rate in order to spur the economy, and suggested the ECB should respond to countries like the U.S. and China that appear to use the exchange rate to promote their economies.