Two European Central Bank (ECB) policymakers expressed significant concern regarding the impact of a rising euro on the struggling eurozone economy, especially in light of impending tariffs from the United States. Since April, the euro has appreciated approximately 9% against the dollar as investors have shifted their attention to the European Union’s growing military and industrial presence, amid uncertainty surrounding U.S. President Donald Trump’s economic policies. A stronger euro presents a dilemma for the central bank, as it makes exports more expensive while reducing the cost of imports, which can hinder both economic growth and inflation. Latvian central bank governor Martins Kazaks cautioned that a combination of a 10% tariff alongside a 10% or greater rise in the euro’s value could significantly hamper export activities.
EU officials are preparing for a likely 10% tariff on goods exported to the U.S. as negotiations with Trump’s administration continue ahead of a July 9 deadline. As of Tuesday, the euro was valued at $1.18, reflecting a 14% increase since the beginning of the year, yet it remains within the stable range it has occupied for the last decade. ECB vice-president Luis de Guindos indicated that while an appreciation to $1.20 may be manageable, anything beyond that would complicate economic conditions. Despite the current economic weaknesses, both Kazaks and de Guindos downplayed the potential for further interest rate cuts by the ECB, suggesting that most necessary adjustments have already been made.
Kazaks noted that any future cuts would likely be minimal and mainly symbolic. De Guindos echoed this sentiment, arguing that additional cuts would not effectively aid the economy, which instead needs more clarity on trade and other policy matters. Inflation in the eurozone registered at 2% in June, and a recent ECB survey indicated that consumers, still feeling the effects of a cost-of-living crisis, are lowering their expectations for future price increases.