ECB's Nagel said the euro’s rise is overstated when judged only against the dollar

ECB’s Joachim Nagel sought to ease fears that the Euro’s rise is hurting Europe’s exporters, saying a focus on the US dollar alone overstates any hit to competitiveness.

Nagel, who heads Germany’s Bundesbank, said Monday that currency moves should be judged against a broad set of trading partners. He noted that while the euro has gained strength by almost 14% against the dollar this year, a trade-weighted view shows a much smaller appreciation. “Simply looking at the euro’s gains against the US dollar therefore exaggerates the extent to which the local export economy is being burdened,” Nagel said. “Overall, I’m not concerned about the current valuation level of the euro.”

The exchange rate is a recurring theme at the ECB. Some officials warn that large gains could slow the region’s recovery and push prices lower. Gediminas Simkus, Lithuania’s central bank head, said at the weekend that the euro’s level is among the reasons why the ECB needs to consider cutting interest rates in December.

Others urged caution. Earlier this year, ECB Vice President Luis de Guindos said any rise above $1.20 would result in things becoming “a lot more complicated,” but last week he added that policymakers “do not have any concrete threshold at all” and that it is better not to look only at the dollar. The euro is trading around $1.18.

The dollar’s weakness has been driven by rate cut expectations from the Fed and tariff policies by Trump. Those developments weakened the greenback and lifted hopes inside the ECB that the euro could take a bigger global role.

Nagel mentions that the dollar won’t get replaced as the world’s main reserve currency. Even so, he said “there are trends toward greater diversification,” and called a stronger international role for the euro “desirable.” To reach that goal, he urged policymakers to remove barriers that still fragment Europe’s financial markets. A digital euro would help, he said. “It would be an important milestone for the savings and investment union and a sensible response to stablecoins,” he said. “The digital euro would make Europe more independent in terms of critical infrastructure.”

Euro’s ‘global moment’ risks slipping away amid political division

As concern over Donald Trump’s trade policy pushed the dollar toward multi-year lows, ECB President Christine Lagarde, in late May, used a Berlin speech to urge Europe’s leaders to act, saying alarm over Trump’s challenge to the economic status quo was a chance to advance the goal of boosting the single currency’s influence.

Building on last year’s proposals for sweeping to Europe’s financial system, Lagarde referred to it as the “global euro moment.” Her thinking, a source familiar with her view said, was straightforward. Convinced this could be a defining moment, France’s former finance minister wasn’t too pleased by the lack of political leadership and thought the void should be filled by one voice. Four months on, that push has faded.

Moves that might have made the euro more attractive to investors have been sidelined, the sources said. Proposals for jointly issuing debt in euros to fund Europe’s defense sector faced a lot of resistance from Paris and Berlin. Smaller countries with bigger financial sectors were against the centralization of supervisory powers in the European bodies. Furthermore, plans for the creation of the digital euro still aren’t clear.

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