SINTRA, Portugal (Reuters) -A 10% U.S. tariff on European goods, combined with a similar or greater appreciation of the euro against the dollar, would significantly impact euro zone exports, European Central Bank policymaker Martins Kazaks said on Monday.
As trade negotiations between the U.S. and the EU remain uncertain, economists are speculating about the conditions that might prompt the ECB to intervene with further interest rate cuts to support the euro zone economy.
Kazaks said euro zone imports would already be affected by a 10% U.S. duty – the baseline to which EU officials have resigned themselves – and a 10% or greater rise in the euro’s exchange rate against the dollar, which would be just 1% more than what it has gained since Liberation Day.
Higher tariffs abroad and a stronger currency make a region’s exports more expensive.
“If there is a 10% tariff plus a 10%-plus euro appreciation of the exchange rate, this is large enough to affect export dynamics,” he told Reuters at the ECB’s annual forum on Central Banking in Sintra, Portugal.
The euro was trading at $1.178 on Tuesday, up 13.8% since the start of the year and 8.9% since the beginning of April.
Kazaks described the euro zone economy as “weak”, although still showing “some growth”, adding that inflation was “more or less” at the central bank’s 2% target, implying little need for major policy changes.
The ECB’s latest baseline projection showed inflation at the ECB’s 2.0% target this year, before dipping to 1.6% the next and returning to 2.0% in 2027.
“The majority of the rate adjustment has been done,” Kazaks said, repeating his previous position. “If there are further cuts, they will be small and have signalling value, provided that we remain in the baseline.”
He also warned that China “was starting to dump goods on Europe”, which would both push down inflation and undermine European competitiveness.
(Reporting by Francesco Canepa, Editing by Louise Heavens)
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