Trump slaps 30% tariffs on EU, Mexico
Investing.com - Some European Central Bank insiders are becoming more worried over the impact of a firmer euro following a steep jump in the currency against the U.S. dollar this year, according to the Financial Times.
Bolstered by a recent shift by investors into European assets during a time of increased U.S. policy uncertainty, the euro has surged by almost 14% so far this year.
But the ECB may need to signal that too much strengthening in the euro could be issue, as it might lead inflation to hover below targets, the FT reported, quoting a senior European central banker. A stronger euro can pull down price gains and make imports cheaper, but also cause exported products to be more expensive abroad and weigh on overall economic activity.
Coupled with signs of tepid growth in the eurozone, along with possible headwinds from U.S. tariffs, some central bankers have become uneasy, the FT reported.
Earlier this week, ECB Vice President Luis de Guindos told Bloomberg TV that this type of "overshooting" of the euro should be avoided. Although the euro exchanging hands at roughly $1.18 may be acceptable, it would be "complicated" for policymakers to wave off levels above $1.20, de Guindos warned.
In mid-morning trading on Thursday, the euro was last trading at $1.1792. The dollar index, which measures the greenback against a basket of its currency peers, stood at 96.83, after having declined by roughly 10% so far this year.
At the ECB’s annual forum in Sintra, Portugal this week, much of the conversation has swirled around the longstanding role of the U.S. dollar as the world’s safe haven currency, especially given President Donald Trump’s sometimes harsh rhetoric around international institutions and protectionist viewpoints.
Trump’s frequent criticisms of Federal Reserve Chair Jerome Powell have also raised fresh worries over the independence of the U.S. central bank, a prospect that could threaten the dollar’s position as the currency of choice for saving and investing.
Speaking at the conference, ECB President Christine Lagarde flagged that investors have been hunting for alternatives to the greenback, noting that the dollar’s weakness suggests that "there is clearly something that has been broken" and it was not clear if "it is fixable."