ECB VP Shrugs Off Inflation as Euro Surges 11% vs Dollar

European Central Bank Vice President Luis de Guindos on the Eurozone Economic Outlook

European Central Bank (ECB) Vice President Luis de Guindos has expressed confidence in the eurozone’s economic prospects, even as the region faces headwinds from U.S. tariffs and a recent strengthening of the euro. Speaking about the broader outlook, he emphasized that while external shocks and currency moves present challenges, underlying labor market dynamics and steady wage growth make a sharp drop in inflation unlikely.

De Guindos downplayed concerns that inflation could fall too far below the ECB’s stated objective. He pointed to persistently tight labor markets across much of the eurozone and wage growth running at around 3% as important stabilizing forces. Those factors, he argued, are likely to help keep inflation close to the ECB’s 2% target over time. By highlighting labor market tightness and stable wage gains, he underscored the idea that domestic demand and cost pressures can sustain inflation at moderate levels, reducing the risk of a prolonged undershoot.

The vice president also addressed the euro’s recent appreciation. Over the past three months the euro has climbed roughly 11% against the U.S. dollar, a notable move for trade-exposed sectors and financial markets. However, de Guindos characterized this rise as manageable rather than fundamentally disruptive. He suggested that while a stronger euro can create adjustment needs for exporters and influence trade balances, it does not in itself amount to a decisive impediment to the eurozone’s broader recovery or to the ECB’s price-stability mandate.

Concerns about the impact of U.S. tariffs on the eurozone economy were acknowledged but framed as one among several external factors the ECB monitors. Tariff measures can affect trade flows, business confidence and investment decisions, and they remain an important part of the economic backdrop. Still, de Guindos conveyed a view that, given the current internal dynamics of the eurozone economy, these external pressures are manageable and do not necessarily imply a dramatic change in monetary policy direction.

On the subject of the euro’s international role, de Guindos dismissed speculation that the euro might soon replace the U.S. dollar as the world’s dominant reserve currency. He noted that the eurozone currently lacks certain elements of financial infrastructure that would be necessary for such a shift. A broadening of the euro’s global footprint would likely require deeper, more integrated capital markets, widely accepted safe assets denominated in euros, and institutional frameworks that support cross-border financial activity. In his assessment, these kinds of developments are not yet in place at the scale required to rival the dollar’s entrenched position.

Overall, de Guindos presented a cautiously optimistic view: the eurozone faces real challenges from external tariffs and exchange rate volatility, but domestic labor market strength and modest wage growth provide key support for inflation remaining near the ECB’s target. That combination, he implied, gives the central bank room to navigate evolving risks without presuming radical shifts in monetary policy. For policymakers, businesses and market participants, the message was one of vigilance coupled with confidence that structural conditions within the eurozone continue to favor stability rather than persistent disinflation or rapid policy drift.