Euro's rise above $1.2 may trigger another key rate cut — ECB officials

In today's interview with Bloomberg, European Central Bank (ECB) Vice President Luis de Guindos raised the issue of the euro's appreciation. He said that the EU currency's growth above the level of $1.2 is undesirable and could trigger further rate cuts.

The Spanish official argued that the ECB does not have any specific target level for the European currency exchange rate. However, the rise of the euro-dollar pair above 1.2 should be avoided. Otherwise, the central bank might need to revise its GDP and inflation forecasts.

Latvian colleague of Luis de Guindos, Martins Kazaks, confirmed the negative effect of a too strong euro. This will lead to a deterioration of the European exporters' competitiveness in the global market and will also put unnecessary pressure on inflation rates by making imports cheaper. This scenario will raise the likelihood of even greater monetary easing in the EU.

At the same time, Bundesbank President Joachim Nagel called not to exaggerate potential problems of a too expensive euro. He considers the exchange rate to be just one of many factors affecting inflation. At the moment, Nagel sees no reason to intervene in the situation.