Christine Lagarde is unlikely to change her approach to the euro exchange rate — says ING analyst

Analysts do not expect any changes in Christine Lagarde’s stance regarding recent euro exchange rate movements. Francesco Pesole from ING Bank notes in his analysis that the President of the European Central Bank will remain loyal to her current position, regardless of the euro’s recent strengthening.

Consistent Stance of Christine Lagarde on Currency Movements

Lagarde repeatedly states that the ECB does not aim for a specific exchange rate level. However, the institution closely monitors changes in the euro’s value, mainly due to their direct impact on inflation dynamics within the eurozone. This approach stems from the fact that currency exchange rates significantly influence the prices of imported goods and services, and thus the overall price level in the economy.

Recent Euro Appreciation and Market Reaction

At the beginning of February, the euro’s value fell below 1.20 against the US dollar. Pesole suggests that this depreciation may have temporarily eased monetary authorities’ concerns about an overly strong currency. The market has so far underestimated the scenario in which the ECB would officially express dissatisfaction with the current strength of the euro.

Potential Implications for the Exchange Rate

If, in the near future, Lagarde and other ECB officials emphasize concerns about the euro’s strength, it could lead to a decline in the currency’s value on financial markets. Such a scenario would signal to investors a possible tightening of the institution’s stance regarding the exchange rate, even though the ECB does not officially set specific currency targets. Pesole’s analysis suggests that the market should be prepared for potential weaker euro movements if Christine Lagarde intensifies her focus on the currency issue.