ECB: Trade War and Euro Strengthening Undermine Eurozone Economy

Forex News

Representatives of the European Central Bank (ECB) at a meeting in March expressed concern about the threat of a full-fledged trade war with the United States and the potential negative consequences of strengthening the euro. At a meeting on March 7-8, the ECB suddenly abandoned its promise to "increase the size and/or duration of the asset purchase program" if economic conditions deteriorate.

Strengthening of the euro in recent months, partly due to concerns about US protectionism, did not lead to a significant reduction in demand. Nevertheless, members of the Board of Governors called the exchange rate "a significant source of uncertainty." Some ECB representatives predict a more negative impact of the euro's growth on inflation. The minutes of the meeting also reflect the increased confidence of ECB representatives that inflation will gradually return to the target level if the regulator shows enough patience.

Benoit Coeure (ECB Member of the Executive Board), said that the Eurozone economy could be in better shape than previously thought, so the interest rates of the European Central Bank may rise with time more than previously thought.

In addition, the ECB leadership expressed concerns about the increased volatility in the world financial markets, and the strengthening of protectionist sentiments in the world and, first of all, in the US can damage the restoration of the economy of the export-oriented currency block.

Trade threats are also on the agenda of the Federal Reserve. The minutes of its meeting on March 20-21, published on Wednesday, showed that most politicians saw the risks of decline for the US economy in terms of retaliatory actions. The World Trade Organization warned that the impending global confrontation began to affect business confidence and investment decisions. US trade protectionism is also likely to jeopardize global growth, which is projected to be lower this year, compared to the past.