European Central Bank Governing Council member and Bank of France Governor Francois Villeroy de Galhau stated that the ECB is closely monitoring trends in the foreign exchange market and is prepared to address any potential impact on inflation.

As the euro strengthens to its highest level against the US dollar since 2021, policymakers are paying close attention. A stronger euro could exert downward pressure on European prices at a time when inflation is gradually stabilizing near the 2% target. Villeroy emphasized that this appreciation reflects a weakening US dollar amid policy uncertainty in the United States, and noted that the euro remains broadly around its long-term average. However, he indicated that officials have heightened their vigilance.

Addressing lawmakers in Paris, Villeroy said, "The ECB does not have a specific exchange rate target, but the exchange rate is clearly important for inflation and growth prospects."

He added, "Our Governing Council will remain highly attentive to relevant trends—I emphasize trends, not levels. There are good reasons for financial markets' declining confidence in dollar-denominated assets."

Villeroy again signaled a stance more dovish than some of his ECB colleagues, reiterating that the risk of inflation falling below target deserves more attention than the risk of it exceeding the target. He once more called for policymakers to be "pragmatic" and "flexible" when setting interest rate policy. Interest rates have been held at 2% since mid-2025.

He stated, "Even if our monetary policy is in the right place, it cannot and should not be set in stone."

Regarding inflation in France, he noted that the current level is not too low. Once temporary factors such as energy costs are overcome, the full-year inflation rate for 2026 could average slightly above 1%. French inflation has been significantly below the eurozone average for over a year, reaching just 0.4% in January.

Villeroy also reiterated that his decision to step down early to lead a charitable foundation supporting disadvantaged children is a "profoundly personal decision" for him and is unrelated to next year's elections in France.