ECB Governor Wunsch Warns Inflation Risk Shifts Downward Amid Strong Euro

European Central Bank officials, including Belgian central bank Governor Pierre Wunsch, are signaling concerns that inflation risks in the eurozone are skewing downward rather than upward, driven by factors such as falling energy prices, a strong euro, and subdued economic growth. Wunsch suggested that the ECB may need to adopt a mildly supportive monetary policy stance since current neutral interest rates may be insufficient to reach the inflation target, especially given the delayed recovery and output below potential. Recent ECB minutes revealed cautiousness amid global uncertainties and trade tensions, with officials favoring flexibility and likely pausing rate changes until clearer data emerges. The euro's sharp appreciation, nearly 14% against the U.S. dollar this year, has raised worries among ECB policymakers that an overly strong euro could suppress inflation further and weigh on economic activity. ECB Vice President Luis de Guindos warned that while a euro around $1.18 is manageable, levels above $1.20 could complicate policy decisions. The broader context includes concerns about the U.S. dollar's safe haven status amid President Donald Trump's rhetoric and critiques of Federal Reserve independence, which may be influencing currency dynamics.