Is the strong euro becoming a burden on the European Central Bank?
The continued appreciation of the euro is a focus of attention for the European Central Bank. After the single currency rose by about 14 percent against the US dollar this year, questions have begun to be raised about the potential impact of this development.
While this rise has coincided with inflation rates falling toward the 2 percent target, ECB officials are expressing concern that this trend could become a challenge. This raises a fundamental question: Is the strong euro becoming a real burden on the ECB, or will its rise undermine price stability and harm Europe's competitiveness?
The ECB is closely monitoring
European Central Bank officials are beginning to worry that the euro's rapid appreciation could hinder their efforts to stabilize inflation at 2 percent.
With the currency approaching its longest winning streak in more than two decades, this topic was prominent at the ECB's annual meeting in Sintra, Portugal, according to a report published by Bloomberg and reviewed by Sky News Arabia. Vice President Luis de Guindos warned that the exchange rate exceeding $1.20 would be problematic, noting that "anything beyond that would be much more complicated."
The report explained that much of the euro's rise was due to the weaker dollar, as US President Donald Trump's tariff campaign dented confidence, pushing investors out of the United States.
This shift was initially welcomed, not only for its potential to combat inflation, but also as an opportunity to strengthen the role of the common European currency on the global stage.
Concerns Beyond Traditional Levels
A recent series of statements by European Central Bank officials, many of which have gone beyond the bank's standard line that the currency is just one of many factors being evaluated and that no specific level is targeted, suggests that at least some policymakers are becoming less comfortable.
This concern is understood to be growing due to the possibility that a strong euro could lead to additional deflationary pressures, as well as the risk of harming an already struggling export industry.
European Central Bank Chief Economist Philip Lane stated that what has been seen so far "seems to be permanent, but of course we are very curious to see what happens next."
Carsten Brzeski, head of macroeconomics at ING Bank, said: "They don't want to admit it yet, but a strong euro will be a growing concern. Ultimately, a further strengthening euro will not only lead to further deflationary pressure but also risk economic damage to the already struggling export industry—enough to justify further interest rate cuts."
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