Euro holds strong as ECB weighs up inflation risks

THE euro held up against the dollar yesterday, as chaos in Libya was offset by hawkish rhetoric from a senior European Central Bank official.

Having dropped as much as one per cent against the dollar as the Libyan crisis escalated, the euro recovered to test $1.37 (£0.85) following the comments by ECB policymaker Yves Mersch.

Inflation is likely to stay above the ECB’s two per cent target of for the whole of 2011, Mersch said.

“I would not be surprised at most ECB colleagues concluding that we have upside risks to price stability,” she added, stressing that the outlook has changed.

“We are experiencing a new external shock -- this is not only coming from oil prices, it’s all kinds of commodity prices and on top we also have pressure on food prices.”