ECB: Is EURUSD Getting “Complicated” For the ECB? Not In Isolation

EURUSD’s push to fresh multi-year highs of 1.1955 may reignite concerns around exchange rate-driven downside inflation risks. This could have contributed to this afternoon’s light uptick in Euribor futures. However, we do not think recent FX moves are enough to motivate a wholesale ECB pivot at next Thursday’s decision/press conference. Domestic data should remain the primary focus, with Q4 flash GDP due on Friday alongside initial country-level January flash inflation readings.

• A reminder that in July 2025, ECB Vice President de Guindos suggested that a EURUSD rate above 1.20 could be “complicated”, owing to less competitive regional exports and weaker imported inflation trends. However, ECB speakers were careful to play down this signal in subsequent comments, stressing that the exchange rate is a factor that is monitored - but not targeted.
• Indeed, nominal and real EUR effective exchange rate indices have been relatively steady for several months now. We would likely need to see a renewed push higher (i.e. broad-based EUR strength) in these benchmarks before action is taken from the ECB.
• A reminder that risks stemming from Chinese trade remain a concern for the Governing Council, making EURCNY another important cross to monitor. The December meeting accounts noted that "The "second China shock" - referring to the country's increased global presence in more advanced products and technologies – was widely highlighted as a major challenge for the euro area economy”.
• EURCNY is currently close to – but importantly below – multi-year highs. From President Lagarde’s December press conference: “It's something we look at carefully, how currencies are positioned around the world. We pay attention to the position against the RMB as one of those.”