ECB’s Kazaks: Current Euro l baked in, but further sharp appreciation could trigger response

Latvian ECB Governing Council member Martins Kazaks said a “sizeable and pacey” strengthening of Euro could materially lower the inflation outlook, “potentially triggering a policy response”. A stronger currency, he argued in a blog post, would weigh on competitiveness and economic activity, feeding through to weaker price pressures.

Kazaks noted that EUR/USD has traded in a relatively narrow 1.15–1.20 range in recent months. The last meaningful appreciation occurred in the second quarter of 2025, a move he described as appearing largely “permanent”.

Because of policy lags, the full disinflationary impact of that earlier appreciation has yet to be felt and is expected to emerge later this spring. Importantly, Kazaks stressed that these effects are already “baked into” the ECB’s baseline forecast, limiting the need for near-term policy adjustment.

With that backdrop, Kazaks said monetary policy is “in a good place” and not the main lever at present. Instead, he argued that urgent progress on structural reforms is needed to strengthen Europe’s economic fundamentals, resilience, and global standing in an increasingly volatile geopolitical environment.

Full blog post of ECB’s Kazaks here.