The euro is approaching a critical level above $1.20 - ECB’s Guindos warns

European Central Bank Vice President Luis de Guindos has stated that a rise in the euro beyond $1.20 could create challenges for policymakers, though he sees current levels as no cause for concern.

In unusual comments from an ECB official on the exchange rate of the common currency, Guindos said the pace of the euro’s appreciation was a bigger concern than where it is now.

During the ECB’s yearly meeting in Sintra, Portugal, the Spanish official expressed that $1.17, or even $1.20, is not a big deal. According to Guindos, they can let it slide a bit. He added that $1.20 is fine, but anything above that would be much more complicated.

Luis de Guindos reveals impact of Trump’s tariff policies on the euro

The ECB typically avoids commenting on the euro’s value, maintaining that while the exchange rate factors into policy decisions, it doesn’t target any specific level — a stance Guindos reaffirmed.

Guindos said they focus on how the exchange rate changes and include its current level in their forecasts. The ECB’s vice president also clarified that they keep an eye on this, but their focus is not on a specific exchange rate.

Meanwhile, reports on June 16 revealed that tariffs would weigh on eurozone economic growth and prices for years. However, Luis de Guindos noted there is little risk of inflation falling significantly, and the euro’s sharp rise against the dollar is not a major concern for now.

The ECB signaled a break in policy easing that month, even though it expects price growth to dip below its 2% target temporarily on the strong euro and low oil prices. This indicates that raising concerns about the ultra-low inflation marks that the pre-pandemic decade could return.

Nonetheless, Guindos dismissed those fears, saying that the ECB is finally close to reaching its goal after many years of missing it above and below. 

In an interview, the ECB’s vice president speculated that the chance of falling short is quite small. Based on his argument, they believe the inflation risks are balanced.

The ECB signals a break in policy easing amid risks of  inflation

One of the main reasons why inflation will rebound to target after falling to 1.4% in the first quarter of 2026 is that the labor market is tight and unions will continue to push for significant wage hikes, maintaining compensation growth at 3%, Guindos countered.

Although he did not directly call for a halt in easing policies, he mentioned that financial investors, who have bet on just one more interest rate cut, possibly towards the end of the year, correctly heard ECB President Christine Lagarde’s message.

According to June reports, the euro is up 11% against the dollar in the past three months, reaching its highest level in nearly four years at $1.1632.

Interestingly, along with hitting exporters hard because of US tariffs, a stronger euro might also reduce the prices of imports even more. 

However, Guindo, who was a former Spanish economy minister on the ECB board for the longest, said the exchange rate had not been volatile or appreciated quickly, which were two key measures in his estimation.

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