Finance
ECB policymakers flag weak dollar concerns
Published by Global Banking and Finance Review
Posted on January 28, 2026
2 min readLast updated: January 28, 2026
Quick Summary
ECB officials express concerns over the euro's rise against the dollar, warning it could lower inflation and impact monetary policy.
ECB Officials Express Concerns Over Rising Euro Against Dollar
Impact of Euro Appreciation on Monetary Policy
PARIS, Jan 28 (Reuters) - European Central Bank policymakers flagged growing concerns over the euro's quick appreciation against the dollar, warning on Wednesday that it could drag inflation down even as price growth is already set to undershoot the ECB's 2% target.
Current Exchange Rate Trends
The dollar was heading for its biggest weekly fall since last April on Wednesday, hitting 1.20 against the euro overnight, its lowest since 2021, on worries over U.S. economic policy and a flight to safer assets like gold.
Policy Implications of Euro Strength
"We are closely monitoring this appreciation of the euro and its possible implications for lower inflation," said French central bank chief, Francois Villeroy de Galhau, adding it was a key factor guiding monetary policy "in the months ahead."
Inflation and Interest Rate Outlook
He said the weaker U.S. dollar against the euro reflected lower confidence amid unpredictable U.S. economic policy.
While the ECB has no exchange rate target, the currency does impact interest rate policy as key imports, like energy, are denominated in dollars and a stronger euro lowers costs.
FURTHER EURO GAINS COULD MEAN POLICY REVISIT
ECB Vice President Luis de Guindos said last summer an exchange rate of 1.20 versus the dollar was acceptable but levels beyond that could become more complicated.
Austrian central bank chief Martin Kocher, meanwhile, said persistent euro appreciation could force the ECB to revisit its policy stance.
Further euro appreciation could "create of course a certain necessity to react in terms of monetary policy," Kocher told the Financial Times.
Longer-term inflation expectations have not moved much this week and financial markets see interest rates unchanged this year, even if there was now a one-in-four chance of a cut by the autumn.
Policymakers have argued in recent weeks that policy was perfectly aligned with the outlook and no interest rate debate was likely in the near term.
(Reporting by Inti Landauro and Leigh Thomas, Writing by Balazs Koranyi; Editing by Charlotte Van Campenhout and Bernadette Baum)
Key Takeaways
- •ECB officials are concerned about the euro's appreciation against the dollar.
- •A stronger euro could lower inflation, affecting ECB's monetary policy.
- •The dollar is experiencing its biggest fall since last April.
- •Further euro gains may prompt the ECB to revisit its policy stance.
- •Interest rates are expected to remain unchanged this year.
Frequently Asked Questions about ECB policymakers flag weak dollar concerns
1What is monetary policy?
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic goals such as controlling inflation and stabilizing currency.
2What is inflation?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
3What is a currency exchange rate?
A currency exchange rate is the value of one currency for the purpose of conversion to another. It indicates how much of one currency is needed to purchase a unit of another currency.
4What is the role of the European Central Bank (ECB)?
The European Central Bank (ECB) is responsible for managing the euro and formulating monetary policy for the Eurozone, aiming to maintain price stability and support economic growth.
