2 July | Euro

ECB officials worry euro’s strength risks fueling disinflation — Bloomberg

ECB officials worry euro’s strength risks fueling disinflation — Bloomberg

European Central Bank (ECB) officials are worried that the euro's rapid rise could derail the regulator's efforts to keep inflation at 2%. The currency has already gained 14% against the dollar this year. However, if the euro continues to climb, it could not only push consumer prices too low in the region but also damage the competitiveness of local exporters, Bloomberg reports.

As ECB Vice President Luis de Guindos pointed out, if the euro rises above 1.20 against the dollar, it could create difficulties for the central bank. For now, though, he says the situation remains under control. 

The ECB's Chief Economist Philip Lane has noted a shift in market sentiment toward the euro. While he considers the current situation to be stable, he emphasized the need for close monitoring. Meanwhile, ING's Carsten Brzeski warned that further strengthening of the euro would intensify disinflationary pressures across the eurozone, setting the stage for more interest rate cuts.

ECB Governing Council member Martins Kazaks suggested further monetary policy easing remains possible. Meanwhile, markets and analysts are pricing in another 25-basis-point cut to the deposit rate this year, which would bring it down to 1.75%.

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