Given that Draghi has now openly pegged the outlook for monetary policy at least partly to the exchange rate, the prospect of both short-term and long-term investors buying the euro is a worrying obstacle for policy.
A rampant euro is anathema to the ECB’s narrow mandate, which is aimed squarely at getting very low inflation back to its target of just below 2 percent. A stronger euro keeps a lid on the price of everything the euro zone imports from abroad. And it makes everything it exports seem relatively more expensive.
The ECB now appears hamstrung between two outcomes, both pointing to a strong euro.
If the euro zone economy relapses from its broadening recovery, and inflation remains dangerously low, speculators may be tempted to try their luck and see how far they can take the euro before a reluctant ECB steps in with a response.