European Central Bank Signals Possible Actions if Euro Continues Rapid Rise

One policymaker at the European Central Bank warned of the implications of the rapid increase in the value of the euro, indicating that continued appreciation of the currency could prompt the bank to reconsider its monetary stance in the near future.

Concerns About the Impact of a Strong Euro on Inflation

ECB board member Martins Kazaks stated that the bank does not target a specific level for the euro exchange rate, but a significant rise could lead to a decline in inflation expectations within the euro area.
He explained that the rise of the European currency makes imports cheaper, which helps reduce price pressures and lowers imported inflation rates, alongside limiting companies' ability to raise their product prices amid declining demand.

Potential Implications for Economic Growth

Kazaks noted that a strong euro could negatively affect economic performance by weakening the competitiveness of European exports in global markets, as European products become more expensive compared to their competitors, potentially leading to a decline in external demand and a decrease in industrial production.
He added that these factors could exert pressure on corporate profits and levels of investment and employment within euro area countries.

Exchange Rate Movements Under Observation

The European official pointed out that the euro's exchange rate against the dollar has moved within a limited range over the past months, but it has recorded a noticeable increase since the second quarter of 2025, suggesting that the full effects of this rise on inflation rates may become clear by next spring.

Interest Rates Held Steady

The European Central Bank decided to keep interest rates unchanged at 2% for bank deposits, a move that aligns with market expectations and reflects the continuation of the current monetary policy while monitoring economic and inflation developments.