ECB Likely to Resist Overreacting to Euro Strength

Key Moments

ECB Sensitivity to Euro Appreciation

Commerzbank strategist Michael Pfister examines how euro strength affects EUR/USD and the ECB’s policy stance. Overall, he argues the central bank is reluctant to place too much weight on currency moves.

“Many ECB officials seem to have realised that focusing on a strong euro is unhelpful. After the panic two weeks ago, when EUR-USD rose above 1.20, officials stressed that most gains occurred in early 2025.

At that time, Germany announced its fiscal package and the US dollar weakened sharply. As a result, the ECB appears uncomfortable with the current focus on euro appreciation and is likely to react only if gains become more pronounced.”

Market Debate on ECB Pain Threshold for EUR/USD

Even so, the euro’s advance remains a key issue for investors and policymakers. In particular, markets are watching the level that could trigger a firmer ECB response.

“The euro is still a hot topic. In client discussions, the main question is how high EUR-USD can rise before the ECB steps in.

Specifically, investors are asking whether the ECB would increase verbal pressure or even cut rates to counter further euro strength. For now, officials continue to address the issue publicly.”

Political Concerns and Export Competitiveness

Pfister also points to the political angle of the debate. In particular, leaders are worried about the euro’s impact on exports.

“Macron is right to raise concerns about a strong euro, as it hurts export competitiveness. Therefore, he will be disappointed that EUR-USD climbed above 1.19 again.

That said, it remains important to assess euro strength in proper context.”

Key EUR-USD Levels Referenced