Column-ECB would welcome a weaker euro :Mike Dolan
LONDON - The European Central Bank would happily, if quietly, cheer an even weaker euro exchange rate - and may be far more wary of the opposite at just the wrong time.
Market thinking and the general thrust of ECB arguments are that the central bank has inflation more or less licked and should return to a neutral policy rate - somewhere around 2% if inflation holds at ECB targets. At that point it would simply sit and pray a cyclical recovery takes hold, while being alert to multiple political and trade risks unfolding through 2025.
As such, at least 125 basis points of ECB expected easing contrasts with market pricing for half that from the U.S. Federal Reserve. Despite the euro being just 5% from dollar parity, which was last seen in the wake of Russia's invasion of Ukraine in 2022, the ECB's nominal euro exchange rate index against the bloc's main external trading partners is still only 1% below all-time highs hit in September.
And for a region potentially facing 10%-20% U.S. tariff hits from President-elect Donald Trump's incoming administration, a simmering bilateral trade row with China and a contraction in Germany, its export-dependent weakest link, currency depreciation would be a blessing. And even if trade tariffs could skew the price outlook somewhat, the ECB's chief economist, Philip Lane, has argued the growth hit from any trade war would be a much greater consideration than any temporary price-level bump from tariff hikes.
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