This is based not just on their views about some “fundamentals”, but also their guesses about other market participants’ views, so there is certainly plenty of opportunity for exchange rates to move very significantly, and stay away from the underlying fundamentals for significant periods of time.
In this perspective, remarks weakening the credibility of monetary policy are globally much less frequently observed.” Does the European Central Bank’s President understand that the currency he manages has acquired the image of an excessively strong currency, making prices for visitors to the euro area more expensive? “No”, replies Trichet without hesitation. “We have, indeed, maintained price stability.