European Central Bank policymakers are concerned that the appreciation of the euro could weigh on exports and drag inflation down further, minutes from their June meeting published Thursday showed.
During the most recent gathering of the ECB鈥檚 rate-setting governing council, members concluded that 鈥榟igher tariffs and the recent appreciation of the euro should weigh on exports鈥�.
鈥楾rade tensions and elevated uncertainty had clouded the outlook for the euro area economy,鈥� the minutes said. The euro has significantly gained in value relative to the dollar since US president Donald Trump began brandishing punitive tariff measures against key trading partners.
Since the beginning of February, the unit has risen from $1.04 to $1.18 鈥� a near four-year high against the dollar.
A strong euro makes exports from the eurozone more expensive and therefore less competitive compared to other producers.
The euro鈥檚 rise at the same time also makes imports cheaper for the 20 countries that use the currency, slowing inflation.
ECB policymakers had this dynamic in mind as they settled on another rate cut in June, reducing the central bank鈥檚 key deposit facility by a quarter-point to two per cent.
The central bank has cut rates at seven successive meetings as inflation rates have fallen back towards the ECB鈥檚 target and worries about the strength of the eurozone economy have grown.
Observers expect the ECB to hold rates at their current levels at its next meeting in late July, while the path beyond that point remains unclear.
鈥楧riven by the stronger currency, the only question for the ECB currently seems to be when and by how much and not if to continue cutting rates,鈥� ING bank analyst Carsten Brzeski said.
Barring any new shocks, the ECB would cut rates 鈥榦ne more time in September鈥�, Brzeski said.
Governing council member Pierre Wunsch told German financial daily Handelsblatt on Thursday he believed 鈥榠nflation risk is more likely to be on the downside than on the upside鈥� 鈥� a position which could favour more cuts.
Some rate-setters were however already in favour of holding borrowing costs steady at the June meeting, arguing that a dip in inflation below two per cent would be transitory.
The ECB鈥檚 latest forecasts see inflation at two per cent in 2025 and 1.6 per cent in 2026, before a rebound to target in 2027.
