ECB's Constancio concerned if euro moves don't echo fundamentals

"I am concerned about sudden movements which don’t reflect changes in fundamentals," ECB Vice President Vitor Constancio said when asked about the recent strength of the single currency in an interview with Italy’s La Repubblica newspaper. "Looking at fundamentals, inflation declined slightly in December".

The ECB faces renewed uncertainty over the inflation outlook as upward momentum from oil and robust economic growth is countered by the downward pressure from the exchange rate. Constancio's remarks also come amid a debate that has recently been dominated by speculation over an adjustment to policy wording early this year, and by renewed calls for a firm end-date for asset purchases.

The euro has gained 1.9% against the dollar this year and is trading near the strongest in more than three years. It was down 0.2% at $1.2231 at 8:30am CET..

The Governing Council meets on 25 January, and Constancio signalled little prospect of a change in the guidance on policy at that gathering, saying officials should be careful not "choke off growth too soon".  The ECB currently pledges to keep bond purchases running until at least September and extend them if needed, and only raise interest rates well after buying stops.

"We see the need for a gradual adjustment of all the elements of our forward guidance if the economy continues to grow and inflation continues to move toward our goal," Constancio said. "This does not mean that changes will be immediate".