The euro will appreciate at a record pace this year and continue to gain in 2014, the European Commission said today, potentially complicating the euro zone’s export-based recovery.
The Commission sees the euro, which hit a two-year high against the US dollar last month, gaining 5.8% against a dollar-denominated basket of industrialised economies this year and 0.9% next year.
Such a rise would outstrip the jump in the euro’s value in 2009, before the bloc’s sovereign debt crisis caused the currency’s value to plummet. It would be a greater appreciation than the averages notched up since its inception in 1999.
A sharply stronger euro makes the euro zone’s exports more expensive and could dampen the bloc’s recovery from its long recession.
Italy’s finance minister has called on the European Central Bank to cut interest rates to a new record low to try to reverse the euro’s rise.
A majority of euro money market traders polled by Reuters this week expect the central bank to keep its main refinancing rate unchanged at its meeting on Thursday.
However, ECB president Mario Draghi is to signal a readiness to ease policy further, after annual inflation in the euro zone fell to 0.7% in October, its lowest level in almost four years and well below the bank’s target of just below 2%.