By tredu.com • 7/3/2025
Tredu
In recent days, European Central Bank (ECB) leaders have shifted their tone on the strength of the Euro (EUR). While ECB President Christine Lagarde once expressed optimism about eurozone confidence reflected in the currency’s rise, Vice-President Luis de Guindos has now warned that a EUR/USD level above 1.20 would be problematic.
This marks a significant change in narrative from within the ECB Governing Council, indicating growing concern about the economic implications of rapid exchange rate appreciation.
De Guindos highlighted not just the level, but more importantly, the pace at which EUR/USD is rising. Since February, the trade-weighted Euro has appreciated by more than 7%, a substantial move in a relatively short timeframe.
Sudden fluctuations reduce planning certainty for exporters, potentially weighing on eurozone inflation and growth. A stronger euro also leads to cheaper imports, which can undermine the ECB's effort to keep inflation near its 2% target.
Despite the concerns, the ECB is constrained in its ability to directly intervene:
If EUR/USD tests or breaks above 1.20, markets will watch how the ECB responds. Any perceived inaction could fuel further euro strength.
If appreciation persists:
However, as analysts note, “cutting rates won’t guarantee euro depreciation” — especially in a global environment where other central banks, like the Federal Reserve, are also leaning dovish.
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