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Mohamed A. El-Erian

Will the ECB Get the Euro Right?

In its efforts to combat "lowflation," the European Central Bank will have to be careful not to spook financial markets.
Watch the currency, Mario. Photographer: Jasper Juinen/Bloomberg
Watch the currency, Mario. Photographer: Jasper Juinen/Bloomberg

The European Central Bank is set to venture deeper into uncharted territory next week in its efforts to ensure a healthy economic recovery. To understand the motivations and gauge the likelihood of success, it's important to pay close attention to the euro.

The euro's appreciation over the past couple of years is largely a good sign, reflecting the ECB's success in restoring confidence and stabilizing financial markets. Unfortunately, it has also gone too far due to developments elsewhere that affect currency markets, including in the U.S., Japan and emerging economies. As such, the strength of the euro has become an obstacle to converting Europe's financial gains into durable economic improvements.