Central Bank Dilemma: Tie Between Money And Inflation Appears Broken

Right now, the Federal Reserve System and the European Central Bank have a dilemma.

Last week the value of the Euro reached $1.2000 for a short time, although the price dropped off to $1.1842 at the close of the week.

The general market feeling is that, if anything, the price of the Euro should rise further.

But, this thought is bringing pressure on Christine Lagarde, the ECB president, to “talk down” the Euro so that the currency does not become too strong and hurt the economy of the European Union and possibly hold down inflation.

Yet, to some, to do this also carries risks.

Stephen Gallo, European head of FX strategy at BMO, has argued,

But at the same time she has to be careful. If they fire that bullet and it only has limited impact, that could be even worse.”

The value of the Euro could grow even stronger.

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