ECB Vice President: Euro Strength and Inflation Risks Under Control Despite Tariffs

European Central Bank (ECB) Vice President Luis de Guindos said the recent appreciation of the euro and trade-related headwinds are not causing alarm at the central bank, with inflation risks seen as balanced and well-contained.

Speaking amid projections that price growth may dip below the ECB’s 2% target, de Guindos emphasized that the risk of prolonged low inflation is “very limited.” He pointed to strong labor market dynamics and consistent wage growth, which he believes will help inflation rebound after an expected short-term dip to 1.4% in Q1 2026.

The ECB has signaled a pause in rate cuts, and markets are pricing in just one additional cut this year. De Guindos supported that sentiment, noting markets have correctly understood President Christine Lagarde’s messaging. “We are very close to our target of sustainable 2% inflation,” he said.

While the euro has climbed 11% against the U.S. dollar over the past three months—reaching nearly a four-year high—de Guindos dismissed concerns. He noted that the appreciation has not been volatile or unusually fast, and at current levels, the euro’s strength is not expected to significantly impact inflation.

He also downplayed speculation that the euro could challenge the U.S. dollar as the world’s dominant reserve currency, citing the eurozone’s lack of comprehensive financial and defense structures. “In the short term, the U.S. dollar’s role as a reserve currency will not be challenged,” he said.

Despite the U.S. dollar's share of global reserves slipping from 68% to 58% in the past decade, the euro’s share remains stagnant at around 20%, with emerging currencies gaining ground instead.

De Guindos concluded by reaffirming faith in the U.S. Federal Reserve’s reliability, even amid broader concerns about U.S. fiscal policy.