European Central Bank policymakers are becoming increasingly uneasy about the euro's rise, fearing it could move substantially higher and undermine the fragile euro zone recovery.
"We have warned for some time about the risks to growth posed by economic imbalances in other regions [the US's budget and current account deficits]. Those risks are now materialising," said a senior official.
"We are clearly not surprised by what is happening . . . but the decline of the dollar has been relatively sharp," he added. It has dropped about 13 per cent against the euro since September.
His comments, which echo remarks from Mr Nout Wellink, the Dutch central bank chief, and Mr Guy Quaden of the Belgian central bank, are the first signs of "verbal intervention" by the ECB to try to slow the euro's rise.
The ECB policymaker said the bank needed time to assess the magnitude and persistence of the euro's appreciation. Its performance over the next "four to eight weeks" could influence the outlook on interest rates.
The central bank, which holds its next rate-setting meeting on January 8th, will update its economic projections for growth and inflation in February and present them to governing council members in March.
The ECB's latest projections, published in its December bulletin, were based on a stable euro-dollar exchange rate of $1.17. Since then, the euro has risen about 6 per cent to a high of $1.2447.
Economists say the strong euro, which many currency strategists believe will rise to $1.30-$1.35 next year, could stifle the export-led recovery now under way. Growth next year is expected to reach 1.6 per cent. Estimates suggest a 10 per cent rise in the euro's real effective exchange rate could shave half a point off inflation and growth over the next two years.
