ECB officials raise concerns about the fate of the dollar

The European Central Bank (ECB) is expected to address a key topic related to the euro’s surge at its first policy meeting in 2026. After this assertion was made public, analysts warned that the risk of inflation in the euro zone could push the rate further below the target level. Responding to this warning, officials gathered in Frankfurt, the central bank’s seat, raised concerns about this discovery.

Despite interest rates remaining unchanged since June and no immediate adjustments expected, officials noted that several important issues still demand their attention.

Meanwhile, reports indicate that the Federal Reserve, US President Donald Trump’s threats of new tariffs, and the recent decline of the dollar have all drawn scrutiny since the ECB last set rates on December 18.

ECB officials raise concerns about the fate of the dollar 

Earlier, Trump said the matter of the dollar’s status does not bother him. His remarks substantially contributed to the US currency’s recent major drop, driving the euro up to around $1.20 for a brief time and setting a new all-time high since 2021. 

Following this finding, officials from the ECB raised concerns that the change could spark mixed reactions among individuals. At this moment, François Villeroy de Galhau, a crucial member of the European Central Bank’s Governing Council, stressed that the euro will be a key determinant of their future monetary policy. 

On the other hand, Martin Kocher, who also serves on the European Central Bank’s Governing Council, said they will closely monitor the currency for continued upward movement.

While the euro became a hot topic of discussion, analysts conducted research and discovered that inflation in the country declined below 2% in December. After several considerations, they forecast that this level will decline further, arguing that the January figures will be approximately 1.7% when the Consumer Price Index data are released on Wednesday, February 11.

The European Central Bank also predicted that price growth will naturally hit its target without additional action. However, if the euro continues to surge, it may spark a new round of rate-cut discussions.

“Europe has started the year with many geopolitical issues, and the ECB will likely keep its focus on bigger problems instead of smaller ones. This means they will probably overlook the recent US trade conflict involving Greenland, the slight drop in inflation below 2%, and the rising euro. However, these changes highlight that there are growing risks to the economic outlook,” analysts said.

The central banks’ decision on interest rates plays a crucial role in the country’s economy 

Sources pointed out that the ECB is expected to publish quarterly surveys on bank lending and expert economic forecasts soon. Additionally, it is among the central banks scheduled to announce interest-rate decisions this week.

Regarding the central bank’s decision on interest rates, reports noted a high likelihood that the UK, Mexico, and the Czech Republic would keep their current rates unchanged. At the same time, India and Poland would reduce theirs. On the other hand, sources pointed to a unique approach by the Reserve Bank of Australia, suggesting it could be the first major central bank to hike rates this year.

Meanwhile, it is worth noting that this month’s job report results in the United States will be compared with the Federal Reserve’s view that the labor market is stabilizing following a period of sluggish hiring activity late last year.

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