ECB’s Guindos Sounds Alarm: Euro Nears Critical $1.20 Threshold – What’s Next?

The euro is teetering on the edge—again. ECB Vice President Luis de Guindos just fired a warning shot as the currency barrels toward $1.20, a level that could trigger fresh market chaos.

Why Traders Are Sweating

Central bankers hate strong currencies almost as much as they love printing money. A euro at this level squeezes exports and makes the ECB’s inflation targets look like fantasy football stats.

The Domino Effect

Watch for emergency rhetoric if the breach holds—verbal interventions first, then maybe the usual ‘we have tools’ posturing. Because nothing says stability like policymakers winging it.

Meanwhile, crypto traders shrug as fiat currencies play musical chairs. At least Bitcoin’s volatility comes with honesty.

Luis de Guindos reveals impact of Trump’s tariff policies on the euro

The ECB typically avoids commenting on the euro’s value, maintaining that while the exchange rate factors into policy decisions, it doesn’t target any specific level — a stance Guindos reaffirmed.

Guindos said they focus on how the exchange rate changes and include its current level in their forecasts. The ECB’s vice president also clarified that they keep an eye on this, but their focus is not on a specific exchange rate.

Notably, the euro has benefited from a weakening dollar, driven by President Donald Trump’s tariff measures that have undermined market confidence, resulting in a nearly 14% rise this year. In response, Guindos emphasized the importance of preventing the euro from overshooting.

Meanwhile, reports on June 16 revealed that tariffs would weigh on eurozone economic growth and prices for years. However, Luis de Guindos noted there is little risk of inflation falling significantly, and the euro’s sharp rise against the dollar is not a major concern for now.

The ECB signaled a break in policy easing that month, even though it expects price growth to dip below its 2% target temporarily on the strong euro and low oil prices. This indicates that raising concerns about the ultra-low inflation marks that the pre-pandemic decade could return.

Nonetheless, Guindos dismissed those fears, saying that the ECB is finally close to reaching its goal after many years of missing it above and below. 

In an interview, the ECB’s vice president speculated that the chance of falling short is quite small. Based on his argument, they believe the inflation risks are balanced.

The ECB signals a break in policy easing amid risks of  inflation

One of the main reasons why inflation will rebound to target after falling to 1.4% in the first quarter of 2026 is that the labor market is tight and unions will continue to push for significant wage hikes, maintaining compensation growth at 3%, Guindos countered.

Although he did not directly call for a halt in easing policies, he mentioned that financial investors, who have bet on just one more interest rate cut, possibly towards the end of the year, correctly heard ECB President Christine Lagarde’s message.

Guindos elaborated by saying that markets clearly grasped what the President meant when referring to a strong stance. He added that he expects markets to believe and factor in that the ECB is very close to achieving its medium-term target of sustainable 2% inflation.

According to June reports, the euro is up 11% against the dollar in the past three months, reaching its highest level in nearly four years at $1.1632.

Interestingly, along with hitting exporters hard because of US tariffs, a stronger euro might also reduce the prices of imports even more. 

However, Guindo, who was a former Spanish economy minister on the ECB board for the longest, said the exchange rate had not been volatile or appreciated quickly, which were two key measures in his estimation.

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