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20th May 2022

Draghi opens fire at US dollar policy

  • The US targeting of interest rates is in contravention of 'something that goes back many many years ago', the ECB chief said (Photo: ECB/Flickr)

European Central Bank (ECB) chief Mario Draghi warned on Thursday (25 January) that US support for a weaker dollar was fuelling market instability.

"The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability," Mario Draghi said at the ECB's monthly press conference in Frankfurt.

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He noted that volatility was partly due to the "unquestionable" improvement of the economy. But he added that another reason was "the use of language that doesn't reflect the terms of reference that have been agreed."

Without explicitly mentioning him, Draghi took aim at the US Treasury secretary Steven Mnuchin, who said earlier this week that "obviously a weaker dollar is good for us [the US] as it relates to trade and opportunities."

Mnuchin argued that "it's a very, very liquid market, and we believe in free currencies."

The dollar hit a three-year low against the euro on Thursday morning, before Draghi's press conference, to $1.24 for €1.

Asked whether Mnuchin's comments were "helpful", Draghi read lines from a statement at a International Monetary Fund (IMF) meeting in October, where finance ministers and central bank governors said that: "We recognise that excessive volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes," the statement said.

"I think that's my answer," Draghi told reporters.

He accused the US of "targeting" exchange rates to boost its economic interests, thus violating an agreement that "has been in place for decades".

"The explicit targeting of the exchange rate is something that goes back many many years ago," he insisted.

Draghi noted that for the ECB, the question raised by exchange rates volatility was whether it would have an effect on the eurozone's "inflation path".

The uncertainty comes as the economic recovery "strengthen[s] further" the ECB's confidence that inflation "will converge towards our inflation aim of below, but close to, two percent."

In the meantime, the ECB said, "monetary stimulus remains necessary for underlying inflation pressures to continue to build up".



The eurozone bank decided to keep interest rates unchanged and to continue its asset purchase programme - also known as quantitative easing (QE) - to the tune of €30 billion a month, until September, and after if necessary.

 While a discussion over when to start winding down the QE programme will take place later this year, Draghi indicated that interest rates would not change soon.

"I don't see any chance at all that interest rates could be raised this year," he said.

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