Frankfurt (Reuters) – The customs duties imposed by US President Donald Trump will weigh on economic growth and the euro zone prices for several years, said Luis de Guindos, vice -president of the European Central Bank (ECB) said on Monday, while affirming that there is little risk that inflation falls too low or that the Euro increase in relation to the dollar becoming a major concern.

The ECB has dropped its guiding rates in June and reported a break up in its monetary easing policy despite inflation projections below its target of 2%, due to the increase in the euro compared to the dollar and the increase in oil prices reviving fears around a low inflation context like the decade having preceded the world pandemic of COVVI-19.

“We believe that the risks of inflation are balanced,” said Luis de Guindos in an interview with Reuters, judging on the contrary that the BCE inflation objective is at hand.

Tensions on the labor market and unions to demand salary increases will support wage growth by 3% and allow inflation to rebound after falling to 1.4% in May, said the vice-president of the Frankfurt Institution.

According to him, investors, who are now betting on a single additional drop in BCE interest rates towards the end of the year, correctly interpreted the message of the institution’s president, Christine Lagarde.

“I think the markets believe and expect that we are very close to our objective of sustainable inflation of 2% in the medium term,” he said.

Inflation in the euro zone is now in line with the objectives and no lasting overtaking is likely, the president of the Bundesbank, Joachim Nagel, also said on Monday at a conference in Frankfurt.

The euro as a reserve currency?

The euro has increased by 11% compared to the dollar in the last three months, reaching its highest level on Thursday for almost four years, namely $ 1.1632.

In addition to the harmful consequences for exporters, already faced with American customs duties, a strong euro could mechanically weigh on import prices.

Luis de Guindos, however, estimated that the exchange rate had not been volatile and that his appreciation had not been fast, two key parameters according to him.

“I think that at $ 1.15, the euro exchange rate will not be a major obstacle,” he said.

The monetary policy official has also minimized the chances that the euro replaces the dollar as a reserve currency worldwide.

If the dollar will represent around 58% of world exchange reserves at the end of 2024, compared to 10 more percentage points over the last decade, the share of the euro, around 20%, has not increased.

While excessive public spending and the United States’ erratic policy have raised questions about debt viability and dollar status, the reliability of the American Federal Reserve (Fed) is no doubt, Luis de Guindos said.

He added that the ECB was convinced that support for the dollar recently renewed by the Fed would remain in place and that the gold reserves preserved by certain central banks at the New York Fed were safe, even in the current context.

(Written by Balazs Koranyi and Francesco Canepa, Bertrand de Meyer, edited by Blandine Hénault)

Copyright © 2025 Thomson Reuters