L’euro trades higher against the US dollar following comments from the president of the European Central Bank, Christine Lagarde that inflation is “still high”.
Currently the euro rises by about 0,27% against the US currency at odds 1.0799thus reaching a maximum of five weeks. On the bond front, we are seeing a slight upside in the spread between the ten-year Btp/Bund a 185 pb. The ten-year BTP is back above the 4% threshold, up 2.6% today.
“The substantial monetary policy adjustment is already behind us: since July last year we have raised interest rates by 350 basis points. However, inflation is still high and uncertainty about its path has increased. This makes a solid strategy for the future essential,” he said Lagarde during the conference The Ecb and Its Watchers XXIII.
“We can be sure of one thing: we will achieve price stability and we will not compromise on our commitment to bring inflation back to 2% over the medium term. To this end, we will follow a solid, data-driven strategy that sees us ready to act, but without compromising on our primary objective,” continued Lagarde.
Last week the ECB raised the interest rates of others 50 basis points, shrugging off the turmoil in the banking sector. The central bank did not provide any indication of upcoming rate moves.
Lagarde warns, environment too uncertain, spread at 185bp
The president of the ECB added that “a solid strategy is needed, which takes into account of considerable uncertainty where we move today”. Quoting Voltaire, he clarified that “Uncertainty is an awkward position. But certainty is an absurd position”, and therefore “in the face of new and overlapping shocks, facing uncertainty is currently our only choice”, he added.
The president explained that “a priori, we are not committed to raising rates further nor that we have finished raising them”, explained Lagarde, reiterating that “if the baseline scenario of our most recent projections is confirmed, we will still have a long way to go do to ensure that inflationary pressures are defused”.
According to the latest forecasts by the Frankfurt institute, shown during the press conference at the beginning of the month, overall inflation in the eurozone will drop in 2023 to 5,3% and al 2,9% in 2024. These figures do not take into account the recent turmoil in the banking sector.
Lagarde’s comments follow the observations of Joachim Nagel, President of the Bundesbank and member of the ECB, who noted that the fight against high inflation “is not over”. In an interview with the Financial Times.
While the chief economist of the ECB, Philip Lane he chimed in with a more dovish comment, saying there are reasons to believe underlying inflation measures will ease over time, according to Reuters.