
Cooler euro lets ECB off the hook
The unfolding trade war will be the elephant in the room at Thursday's meeting, with no clarity yet on whether Washington will follow through on its threat of up to 30% blanket tariffs on European goods from next month. But another major discussion point may be the euro exchange rate, which has been a thorny issue for the central bank to navigate.
On one level, euro appreciation had broadly been welcomed by the ECB's top brass this year, as they embraced the potential benefits of a 'global euro' and apparent investor move from U.S. assets to European markets.
Policymakers appear to believe that siphoning off at least some of America's long-standing "exorbitant privilege" to cheapen its own hefty investment needs is, on balance, worth any marginal burn to export competitiveness.
And the strong euro also played into the hands of interest rate doves, as it weighed down on import and commodity prices.
But rumblings of unease about the euro's 15% surge against the dollar this year started to emerge within ECB ranks at midyear, and this has coincided with a 1.5% retreat of the supercharged single currency from its near four-year high above $1.18 on July 1.
At the ECB's annual conference in Sintra in Portugal, ECB vice-president Luis de Guindos said the central bank could ignore the euro's rise against the dollar up to $1.20, but not higher. "Beyond that, it will be much more complicated."
Latvia's central bank boss Martins Kazaks was more pointed: "If there is a 10% tariff plus a 10%-plus appreciation of the exchange rate, this is large enough to affect export dynamics."
De Guindos then doubled down on that view last week when he said, "Let's hope it (the euro) will stabilise somewhat and that it won't have any further negative impact from the point of view of ... economic growth."
What is clear amid all these statements is that there is an ECB pain threshold for euro gains in the middle of trade war. And the higher the tariffs eventually turn out to be, the more acute the hit.
For the doves, further appreciation helps the case for a resumption of rate cuts below the current 2% level, considered a neutral setting by most. But additional strengthening would agitate hawks who fear euro distortions may lead to an outright stimulative policy inappropriate given worrying price dynamics from wages and upcoming fiscal stimuli.
Whether public ECB warnings were partly responsible for the euro retreat this month is a moot point.
But something of a game of chicken may now be underway, not least because the dollar has stabilized and the recently broken relationship between currencies and the Transatlantic interest rate and yield gaps has re-asserted itself to some degree.
U.S. policy disruption and institutional concerns caused the dollar to plunge earlier this year despite the widening U.S. bond yield premia over Europe , but it's started to shift again.
Any renewed euro surge combined with sharply higher tariffs would surely embolden the ECB ease again in September, more confident it can rein in the currency this time at least. Markets are priced for at least one more in the current cycle.
Deutsche Bank, which retains its call for a "terminal" ECB rate as low as 1.5%, said the risks may have risen that ECB is slightly more cautious than that.
Deutsche's Mark Wall claims there's a key difference in what the ECB will see as an "exogenous" euro shock that happens regardless of interest rates and economic strength and one that eventually builds as the economy improves under fiscal stimulus.
"Not all FX appreciation is the same," they said.
So, in effect, the central bank is juggling with timing and sequencing - easing now to guard against deflationary pressures in a relatively weak economy while preparing to reverse that next year when Germany's giant spending boost kicks in.
"As this transition occurs, FX could become less of a constraint on monetary policy," Deutsche reckons.
The ECB may get summer off, but it has tricky fall ahead.
The opinions expressed here are those of the author, a columnist for Reuters
-- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter Morning Bid U.S.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Daily Mail
27 minutes ago
- Daily Mail
New study reveals crippling impact of California's minimum wage hike
California 's dramatic fast food wage hike may have backfired, according to a new economic study – wiping out an estimated 18,000 jobs across the state in just one year. The research, published this month by the National Bureau of Economic Research (NBER), analyzed the impact of Assembly Bill 1228, which mandated a $20 hourly minimum wage for fast food workers at large chains starting April 1, 2024. According to the economists behind the study, fast food employment in California dropped by 3.2 percent, while jobs in the same sector grew slightly across the rest of the U.S. 'Our median estimate translates into a loss of 18,000 jobs in California's fast–food sector relative to the counterfactual,' wrote researchers Jeffrey Clemens, Olivia Edwards, and Jonathan Meer. Before the law took effect, California's fast food industry was tracking the same employment trend as the rest of the country, the study found. But after AB 1228 was passed, the sector began to shrink. 'Following AB 1228's enactment, employment in the fast food sector in California fell substantially,' the paper states, citing declines 'even as employment in other sectors of the California economy tracked national trends'. Critics say the figures confirm what many feared: that a massive one–size–fits–all pay hike would push jobs out of reach for the workers it was meant to help. 'When it comes to central planning, history keeps the receipts: Wage controls never work,' wrote Heritage Foundation economist Rachel Greszler in a column reacting to the findings. 'That's because policymakers can set wage laws, but they can't outlaw the consequences.' She warned the law should serve as a wake–up call for other cities – especially Los Angeles, which recently voted to raise wages for hotel and airport workers to $30 an hour by 2028. 'The consequences of that wage hike on the fast–food industry should be a warning sign,' she said. The Wall Street Journal editorial board echoed that message, slamming politicians for 'magical thinking' around wage hikes. 'The Democratic Party's socialist nominee for New York mayor, Zohran Mamdani, has called for increasing the city's minimum wage to $30. Andrew Cuomo, his supposedly more moderate competitor, wants a $20 minimum,' the board wrote. 'These guys will never learn because they don't want to see the world as it really is.' But Governor Gavin Newsom's office has pushed back hard – questioning the integrity of the NBER paper and insisting California's wage law is working as intended. Tara Gallegos, Newsom's deputy director of communications, dismissed the study as politically motivated, telling Fox News Digital that it was 'linked to the Hoover Institution,' which she claimed had previously published 'false or misleading information' about the state's wage policies. She pointed to an October 2024 report in the San Francisco Chronicle, which said the early effects of AB 1228, 'defy a lot of the doom–and–gloom predictions' made when the bill was signed. Gallegos also cited a February 2025 study by a UC Berkeley professor, which looked at fast food employment trends through December and found 'no negative effects.' 'Workers covered by the policy saw wage increases of 8 to 9 percent, with no negative wage or employment effects on non–covered workers,' she said. 'No negative effects on fast–food employment.' She added: 'The number of fast–food establishments grew faster in California than in the rest of the U.S.' As for prices, the Berkeley study claimed menu costs rose by only 1.5 percent - about six cents on a $4 hamburger. The NBER paper also looked at whether the law had a knock-on effect in full-service restaurants, which weren't subject to the $20 mandate but compete for the same workers. The authors found smaller but still negative employment effects - a median drop of 2.12 percent. And while critics were quick to blame the law for economic pain, the researchers warned against cherry-picking isolated data.


Daily Mail
27 minutes ago
- Daily Mail
Chilling prediction about Florida's condo crisis - the 5 crucial factors for the next 3 months
Experts have issued a chilling warning about the future of Florida 's condo market as insiders warn that the next three months could bring even more instability. Florida's condo market is facing a full-blown crisis, Miami real estate insiders have told Daily Mail. In an exclusive interview, Joe Brikman, Team Leader at The Modern Day Team, and Luxury Development Specialist Rebecca Fischer explained the reality facing both buyers and sellers in what they describe as a 'cautiously optimistic' but quickly changing market. The top realtors are predicting major instability in the next three months as buyers are urged to avoid rushing into bad deals. 'The biggest piece of advice I'd give is: don't rush,' said Brikman. 'The deals are out there, but you need to do your homework.' 'Make sure you're working with an agent who understands what to look for especially when it comes to building financials, reserves, and upcoming assessments,' he said. 'It's not just about the unit, it's about the health of the entire building.' The duo outlined five crucial factors every potential Miami condo buyer must consider, starting with building reserves which are more critical than ever before, especially after the devastating 2021 collapse of condo building Champlain Towers South in Surfside. Looking ahead, the experts predict a continuously emerging market over the next six months with a major clash between old and new buildings. File picture of Collins Avenue, Caribbean South Beach Condominium These are the crucial factors Miami condo buyers should watch out for right now: 1. Building reserves Make sure the building has strong reserves in place. It's more crucial than ever under new state laws. 2. Assessments Ask if there are any current or upcoming special assessments. These can cost owners thousands and often come as a surprise after closing. 3. Inspection and recertification Confirm that the building has passed its required 40-year (or 30-year in some counties) safety inspection. 4. HOA fees Take a close look at monthly HOA fees and what they include. Many buildings have raised dues significantly to meet legal requirements. 5. Insurance costs Premiums across Florida are skyrocketing. Buyers should factor rising insurance rates into their long-term budgeting The 2021 collapse of a condo building in Surfside led to a new law that requires condo buildings to undergo structural inspections and shore up reserves Looking ahead, the experts predict a continuously emerging market over the next six months with a major clash between old and new buildings. He said savvy buyers, who have done their research, will come out on top. 'Over the next 3 months, I think we'll keep seeing price adjustments, especially in older buildings that haven't addressed reserve requirements,' Brikman said. 'In six months, the buyers who've done their research and bought smart will be sitting in a great position,' he predicted. 'I think newer buildings and those with clean financials will stay strong, while others may continue to struggle.' Still, the market disruption has created some jaw-dropping opportunities. The Modern Day Team currently has a $350,000 four-bedroom penthouse in North Miami Beach, a $750,000 two-bedroom penthouse in Brickell, and a two-bedroom waterfront apartment in Miami Beach hitting the market soon. There are still areas with opportunity for buyers. Edgewater, parts of Downtown, Brickell, and North Miami Beach are emerging as value hotspots, particularly for new construction buildings. 'On the Resale We're seeing sellers get more flexible some are offering to cover closing costs, buy down interest rates, or even cover a few months of HOA fees,' he revealed. 'Cash buyers especially have more room to negotiate.' When asked to sum up this year's market in two words, the response was telling: 'Cautiously optimistic'. 'Buyers are still active, but they're more careful and they should be,' Fischer noted. 'It's a different kind of market than it was a year ago.' The 2021 collapse of a condo building in Surfside led to a new law that requires condo buildings to undergo structural inspections and shore up reserves. This has meant that many HOAs have been hiking fees and doling out hefty special assessments to comply with the new rules, which has reduced demand for condos. The Surfside condo collapse saw 98 die in the tragedy. There are now new plans for a $15million-per-unit apartment block on the site dubbed The Delmore. The ultra-luxury high-rise is being constructed by Dubai-based developer Damac Properties after it purchased the land for $120million less than one year after the collapse on June 24, 2021.


Times
an hour ago
- Times
SEC reforms tipped to ‘turn on the tap' for London Stock Exchange
The US market regulator is considering plans to change how foreign companies are listed in New York, which could provide a much-needed boost to the London Stock Exchange. Under ideas circulated by the Securities and Exchange Commission (SEC), foreign companies that are quoted in New York could be required to have a secondary listing in another location if they aren't already listed elsewhere. This demand, if enacted, could affect prominent companies including Arm, the Cambridge-based chip designer that is listed in New York. Foreign companies could also be subject to American accounting rules, which might have the effect of forcing them to move their entire domicile to the US. Lawyers at the global legal firm DLA Piper said the work under way at the SEC could 'turn on the tap' for London to attract secondary listings from these so-called foreign private issuers (FPIs). This would lift the London Stock Exchange, which has faced criticism for losing out on initial public offerings (IPOs) to New York. It has also been deserted by a number companies that have switched their listings to America in the quest for higher valuations. • How to save London's stock market, by LSE boss David Schwimmer Companies using the FPI rules are not subject to quarterly reporting requirements and can use international accounting standards to retain their New York listings. However, the SEC said it had devised these rules decades ago on the basis that they would be 'subject to meaningful disclosure and oversight in their home jurisdictions'. Before 2003, the vast majority of FPIs were European and subject to oversight by their domestic regulator. But 20 years later, the largest jurisdiction in terms of 'issuer incorporation' was the Cayman Islands, and the largest by headquarters was China, the SEC said. Rob Newman, co-head of capital markets for DLA Piper in the UK, said that if the changes were implemented, there could be repercussions for a wide range of companies. 'What we're talking about is companies [like] Arm Holdings, which chose to list in New York, doesn't have its stock traded anywhere else, and is currently relying on exemptions of being a foreign private issuer,' he said. Another company to take advantage of the FPI regime has been Virax Biolabs, a Glasgow-based biotech company that listed its shares on Nasdaq after incorporating in the Cayman Islands. In a letter to the SEC, Virax Biolabs' chief executive, James Foster, said: 'Our company was advised by our underwriter at the time of IPO to incorporate in the Cayman Islands as a means to facilitate a US listing. Our operational headquarters, executive leadership and business administration have always been located in the United Kingdom. We would not have adopted the Cayman structure but for this advice.' The SEC has asked for responses to its consultation by early September. It is unclear when it would make any rule changes.