Euro Surges, Inflation Slows, What’s Next for ECB Monetary Policy?

The euro’s steady rise has long unsettled European Central Bank officials, and that concern sharpened ahead of Thursday’s meeting. The ECB is widely expected to hold its benchmark rate at 2% for a fifth straight meeting. However, the eurozone’s January inflation eased to 1.7%, below the ECB’s 2% target, while the euro surged above $1.20 last week, a four-and-a-half-year high, reviving debate over future rate cuts. ECB President Christine Lagarde has said rates are in a “good place,” but ING economist Carsten Brzeski warned recent moves have made that stance less comfortable. Austrian governor Martin Kocher said further euro gains could force action. Analysts at Capital Economics now expect rate cuts toward year-end, as a strong euro risks slowing inflation and growth.