Will the ECB Change Its Tune on the Euro’s Rise?

From Dollar Strength to Euro Surge

The forex market in 2025 has flipped the script. Instead of strengthening on the back of the “Trump trade,” the U.S. dollar has tumbled, with the US Dollar Index (USDX) falling over 11% this year to a low of 96.38.

At the center of the storm is EURUSD, otherwise known as the anti-dollar,the world’s most actively traded currency pair. It has rallied 16.6% off its 2025 low of 1.0146, hitting a high of 1.1830 (+14.3% year-to-date) with the the psychological 1.20 level looming above.

EURUSD DAILY CHART

USDX DAILY CHART

Will the ECB Change Its Tune on the Euro’s Rise?

ECB Response: Surprisingly Calm

Despite the sharp euro appreciation, European Central Bank (ECB) officials have shown little concern, at least publicly. Recent comments include:

Luis de Guindos: EURUSD at 1.17–1.20 is “perfectly acceptable,” though anything higher could get “complicated.”
Madis Müller: No urgency to change rates. The euro’s move is “quick but not concerning.”
Olli Rehn: EUR strength helped the ECB hit its 2% inflation target.

In short, the ECB is not pushing back yet.

Why the ECB Is Not Panicking?

The answer lies in its mandate.

Price Stability Comes First

The ECB’s primary mandate, as outlined in Article 127(1) of the Treaty on the Functioning of the European Union, is price stability.

The ERC strategy was revised in 2021 to mean keeping inflation near but not above or below 2% over the medium term.
That revision makes disinflation just as serious as inflation, especially in an environment of currency-driven price pressures.

Growth Matters, But Is Not the Primary Objective

The ECB also supports broader EU economic goals as long as they don’t conflict with price stability. While a strong euro may hurt exporters, that’s not enough to override the inflation objective.

Is the Strong Euro Now a Threat?

While most ECB policymakers have stayed quiet or supportive, the tone may be shifting.

François Villeroy de Galhau recently warned:

“EUR appreciation has a clear disinflationary effect and creates the risk of inflation undershooting the target.”

This imay foreshaow a change in tone.. If the euro continues rising and inflation starts falling below 2%, the ECB could be forced to ac despite previous ambivalence.

Where’s the Tipping Point?

Markets are watching EURUSD 1.20 closely.

That level has historically triggered concerns about export competitiveness and inflation undershooting.
While EUR strength alone may not prompt a response, if paired with falling inflation and U.S. tariff shocks, the ECB could shift its tone fast.

ECB’s Forex Toolbox: Not Much Left

Even if the ECB grows uncomfortable with euro appreciation, its policy tools are limited:

Rate cuts: Possible, but controversial given already low rates.
Verbal intervention: Could slow momentum but lacks lasting impact.
Currency intervention: Highly unlikely, especially unilateral. The U.S. under President Trump would strongly oppose any form of intervention.

Market Watch: Key Levels & Indicators

Resistance: EURUSD 1.1800–1.1830 is a key obstacle before 1.20.
Trigger: A break above 1.20 could raise policy eyebrows.
Wildcard: U.S. tariffs: if inflation dips and tariffs bite, expect more vocal ECB concern.

Will the ECB Flinch?

So far, the ECB has tolerated a stronger euro. But if inflation undershoots the 2% target and EURUSD keeps climbing, the central bank may be forced to change its tune. For traders, all eyes should remain on EURUSD 1.20, the HICP inflation index, and whether policymakers like Villeroy gain more support for reining in the rally.

Addendum: Jyly 9, 2025

This headline is further confirmation that EURUSD is reaching a point of concern over the negative impact of a stronger currency

Will the ECB Change Its Tune on the Euro’s Rise?

From Dollar Strength to Euro Surge