Vietnam Insider | September 11, 2025 – The European Central Bank (ECB) has decided to keep its benchmark interest rate unchanged at 2% for the second consecutive time, reflecting cautious sentiment in the face of global economic uncertainty—particularly surrounding U.S. import tariffs.

Following its policy meeting on September 11, the ECB stated that inflation across the eurozone remains close to its 2% target, with little change in the outlook. “The Governing Council’s assessment of the inflation outlook is largely unchanged,” the ECB noted, signaling that its decision aligned with investor expectations.

The current rate was set in June 2025 after eight consecutive rate cuts since mid-2024, as the ECB sought to stimulate growth amid tepid economic performance. However, the central bank is now adopting a data-dependent approach, emphasizing flexibility and refraining from forward guidance on future rate moves.

Economic Headwinds from U.S. Tariffs

The ECB’s cautious stance comes as the eurozone faces mounting uncertainty from trade tensions with the United States. Although the European Union (EU) recently signed a trade agreement with the U.S. that included a reciprocal 15% tariff framework, unresolved disputes—such as levies on wine and spirits—continue to create friction.

Investor concerns were further heightened after U.S. President Donald Trump threatened retaliation against the EU for a €3.45 billion ($3.7 billion) antitrust fine imposed on Google. Washington’s aggressive trade posture has fueled volatility in transatlantic economic relations, putting pressure on both investment and exports.

The U.S. remains the EU’s largest trade and investment partner, with European exports to the U.S. totaling €503 billion ($590 billion) in 2024. Yet, despite this strong economic linkage, growth in the eurozone has been sluggish. In Q2 2025, the euro area’s GDP grew by only 0.1%, down significantly from 0.6% in Q1.

Lagarde: Growth Pressures Will Ease in 2026

At the post-meeting press conference, ECB President Christine Lagarde acknowledged that the inflation outlook remains uncertain amid a volatile global trade environment. She pointed to several headwinds—including high import tariffs, a strengthening euro, and intensified global competition—that may continue to constrain the bloc’s economic growth through the end of the year.

However, Lagarde remained cautiously optimistic, forecasting that the negative impacts from these challenges are expected to subside in 2026.

Outlook

With inflation stable but growth fragile, the ECB is likely to maintain a wait-and-see approach in the coming months. Investors will be closely watching upcoming data and policy shifts, particularly any escalation in U.S.-EU trade tensions or changes in the global interest rate landscape.

As Europe navigates this uncertain path, the central bank’s commitment to data-driven decision-making may offer some reassurance—but significant risks to growth and investor sentiment remain.

Stay updated with Vietnam Insider for more insights on global economic trends and their impact on Vietnam and the ASEAN region.

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Source: Vietnam Insider

The USD index, which compares the dollar to other major currencies, decreased 0.2% to 102.4918 during this session.

The “hawkish” comments made by the ECB President during this session were an influence on the USD. Lagarde predicted that inflation in the Eurozone will continue to be too high for a very long time while speaking at an annual meeting of major central banks held in Portugal.

She said that policymakers were “uncertain” as to when interest rates will peak.

The British pound increased to 1.2751 U.S. dollars from 1.2721 dollars in the previous session during the late New York trading, and the euro increased to 1.0960 U.S. dollars from 1.0915 dollars.

This session’s currency rate of 1 USD for 144,0130 Japanese Yen was lower than the previous session’s exchange rate of 143.4470 Japanese Yen for 1 USD, indicating that the yen remained still weak.

After news that US consumer confidence increased to a one-and-a-half-year high, the decline in the dollar was slightly restrained.

The US consumer confidence index, therefore, increased from 102.5 in May to 109.7 in June, according to survey findings from the Conference Board that were made public on June 27. This was the highest level since January 2022. In the survey conducted last month, consumer inflation forecasts for the coming 12 months dropped from 6.1% to 6.0%, the lowest level since December 2020.

However, US consumers continue to believe that a recession is a possibility for the economy during the next 6 to 12 months.

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Source: Vietnam Insider

The European Central Bank has examined the use of distributed ledger technology and smart contracts for its potential new digital currency.

The European Central Bank (ECB) has finalized prototypes for a digital euro as it prepares to take a decision later this year over whether to develop the EU’s fiat currency in a new format, according to reports released on Friday.

The ECB says its potential central bank digital currency (CBDC) can be designed to boost innovation – but appears more skeptical about using Web3-style distributed ledger technology and smart contracts.

“This exercise shows that it is possible to smoothly integrate the digital euro design choices into the existing payment landscape while leaving ample scope for innovative features and technologies,” ECB Executive Board member Fabio Panetta said in a letter to the European Parliament’s Irene Tinagli, adding that findings “will serve as input for both the functional and technical design of a digital euro.”

While the digital euro was at one stage floated as an answer to Facebook’s own currency, Libra – subsequently renamed diem and then abandoned – the ECB’s prototypes have been plagued by controversy due to the involvement of another U.S. tech giant, Amazon.

As EU lawmakers called for a U-turn on the plans, Panetta appeared keen to downplay the long-term significance of Amazon’s involvement, saying that prototypes were a “lab experiment” to be “discarded and not used further.”

Design

For the back-end of the prototype – developed by the central bank itself – the ECB rejected distributed ledger technology, but favored a centralized model based on unspent transaction outputs, or UTXO, that are also used in crypto transactions.

The UTXO system “allows for fast and efficient validation of transactions,” supporting different payment types while protecting privacy, the ECB report said, adding that it also allowed conditional payments to be made without using smart contracts – a type of automated software popular in decentralized finance.

In June, the European Commission is due to publish a bill covering digital euro privacy safeguards and other major issues. But lawmakers have expressed skepticism over the CBDC’s benefits, particularly if it doesn’t allow for innovations such as programmable money where users can control how funds are subsequently used.

The EU is one of many jurisdictions across the world currently contemplating a CBDC – including near neighbors at the Bank of England.

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Source: Vietnam Insider