Euro down against all major currencies after ECB minutes released

The euro fell against all its major peers while European shares pared an earlier drop after minutes from the European Central Bank meeting showed officials' concern over the strength of the currency.

European Central Bank officials said they’re worried that the euro might strengthen more than justified by an improving economy.

Against sterling, the euro was trading down 0.4 per cent at 90.9p at 1pm, while it reached $1.169, down 0.6 per cent, against the US dollar.

“While it was remarked that the appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-a-vis the rest of the world, concerns were expressed about the risk of the exchange-rate overshooting in the future,” the account of the July 19th-20th policy meeting released by the ECB on Thursday showed.

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"In this context, the point was made that, looking ahead, the Governing Council needed to gain more policy space and flexibility to to adjust policy and the degree of monetary policy accommodation, if and when needed, in either direction."

The single currency has gained 11 per cent against the dollar this year and 17 per cent on a trade-weighted basis as an economic recovery spreads through the 19-nation euro zone. That appreciation highlights the challenges policy makers face as they head for a gradual exit from monetary stimulus.

At their meeting, policymakers discussed making “incremental” changes to their forward guidance.

Misalignment

“Postponing an adjustment for too long could give rise to a misalignment between the Governing Council’s communication and its assessment of the state of the economy, which could trigger more pronounced volatility in financial markets when communication eventually had to shift,” according to the account. The region’s economy gathered pace in the second quarter, growing 0.6 percent from the first three months of the year.

Euro-area inflation held at 1.3 per cent in July - enough to argue that deflation risks have disappeared, but too little to meet the ECB’s goal.

The Governing Council stressed that the “overall degree of accommodation was determined by the combination of all the monetary-policy measures,” even though asset purchases continued to be a “key instrument” if an adjustment of the policy stance was needed.

Bloomberg