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Commerzbank’s Michael Pfister discusses Euro strength and its implications for EUR/USD and ECB policy. Pfister expects stronger ECB reactions only if Euro appreciation becomes significantly more pronounced.
ECB reaction function to euro strength
“Many ECB officials also seem to have realised recently that focusing on the strong euro is unhelpful. Following the panic that broke out two weeks ago when EUR-USD rose above 1.20, recent statements have emphasised that most of the appreciation occurred in the first quarter of 2025, when the German fiscal package was announced and the US dollar had undergone its initial significant depreciation. Therefore, I would assume that the ECB is also uncomfortable with the strong focus on the euro’s appreciation and will probably only react more strongly if the appreciation becomes even more pronounced.”
“The euro remains a hot topic at the moment. In discussions with clients, the question often arises as to what level of EUR-USD might be too high for the ECB, i.e. at what level of euro strength might the ECB take stronger verbal action or even cut interest rates to counteract it? In line with this, officials continue to discuss the role of the euro publicly.”
“Macron is right to raise the issue of the strong euro, which makes euro area exports less competitive, so he will be disappointed that EUR-USD rose above 1.19 again yesterday. However, it is also important to assess the strong euro appropriately.”
