Euro Appreciates Continuously to New Highs, Central Bank Closely Monitors Economic Impact

The European Central Bank faces new challenges. ECB Governing Council member Kazaks recently stated that, in response to the accelerating euro appreciation since early 2025, the central bank is closely assessing its impact on the economy. According to his analysis, exchange rate changes take about 12 months to fully transmit to the real economy, so the full effects of the euro’s appreciation are expected to become evident by late spring 2025.

Repeated Policy Fluctuations by Trump Reshape the Market

In the first half of 2025, the euro appreciated by a total of 14%, a rare occurrence in recent years. Market analysis points to U.S. President Trump’s repeated statements on trade tariffs as a key trigger. The constantly changing policy signals have undermined investor confidence in the dollar and deepened global economic uncertainty, leading to shifts in capital flows that further accelerated the euro’s appreciation.

The Central Bank Has Incorporated the Appreciation Impact into Its Forecasts

Although most of the economic effects of the euro’s appreciation are already reflected in the ECB’s latest economic forecast models, several policymakers, including President Lagarde, remain highly cautious. They have stated that they will continue to closely monitor exchange rate movements and are prepared to deploy policy tools to address potential risks. However, Kazaks also emphasized that current market conditions have not yet reached the point where immediate action is necessary. Central bank officials are currently in a “wait-and-see” phase, accumulating more data to better assess the actual impact of euro appreciation on inflation, employment, and growth before taking further steps.