ECB Tracks Euro Strength as Currency Gains Threaten Inflation Outlook

The European Central Bank is monitoring the euro's appreciation, with Governing Council member Francois Villeroy de Galhau warning that further currency strength could exacerbate already subdued inflation. Eurozone inflation remains stubbornly below the ECB's 2% target, raising concerns among policymakers about additional downward pressure from exchange rates.

Villeroy emphasized the ECB doesn't target specific exchange rates but will consider the euro's movements in future rate decisions. The currency briefly surpassed $1.20 this week amid dollar weakness, prompting scrutiny from multiple Governing Council members including Austria's central bank chief Martin Kocher.

This development comes as President TRUMP dismissed concerns about the dollar's decline, creating potential headwinds for ECB policy. With inflation forecasts remaining below target through 2021, the central bank faces mounting challenges in sustaining price growth.