However, consumers and firms can react asymmetrically, since appreciation dampens inflation pressure on the one side but challenges the competitiveness of firms on the other. If exchange rates and their impact on the economy are apparently so difficult to explain, let alone predict, should monetary policy interfere? As for the euro area, the ECB has no exchange rate target.
A key implication of flexible exchange rate system is that the external value of the currency is determined by financial markets and hence cannot be an instrument of economic policy. The primary objective of the Eurosystem, that is the ECB and the national central banks of the euro area, is to maintain price stability in the medium term.