(Jan 15): The exchange rate matters for the euro-area economy over time, though monthly movements in currency are typically absorbed by companies, European Central Bank (ECB) chief economist Philip Lane said.

“Euro-dollar movements over time — of course if it’s permanent — will filter through to prices in Europe,” he said at an event in Hong Kong on Wednesday. In the initial months of a large movement in the exchange rate, “a lot of this will be absorbed by the firms”. 

The return of Donald Trump to the White House next week could usher in an era of upheaval in global commerce, as he has threatened to introduce tariffs. Expectations of punitive US trade policy fuelling price pressures has already prompted a strengthening of the dollar against other currencies. 

Wall Street is forecasting even more gains in the greenback, as a resilient US economy and dwindling expectations for interest-rate cuts coincide with Trump’s tariffs pledges.

“The exchange rate, I think, over time plays a role,” Lane said. “But in terms of the month-by-month, quarter-by-quarter correlation between the exchange rate and import prices is not that stable.”

The ECB chief economist is among officials calling for further monetary loosening, with inflation set to meet the 2% goal this year, and Europe’s economy struggling to gain traction. Investors have become a little less optimistic on rate cuts of late, now predicting three this year. But several policymakers maintain that four are likely — the same number they enacted in 2024.

Lane on Wednesday steered clear of giving guidance on what’s next on ECB rates, instead highlighting the uncertainty ahead. 

Uploaded by Liza Shireen Koshy