The euro is in negative territory for a second straight day. Currently, EUR/USD is trading at 1.1538, down 0.51% on the day.
ECB’s Lagarde says no to raising rates
The euro started the week with gains and pushed up the 11.6 line, but dovish comments from ECB President Christine Lagarde put a lid on any hope of a rally, and EUR/USD is now closing in on the 1.15 level. Lagarde dismissed any expectations of a rate hike from the ECB, saying that it would not have any effect in the current environment of high commodity prices. In September, Lagarde dismissed the notion of a taper by the Bank, stating “the lady isn’t tapering”.
Lagarde has signalled that she has no intention of following other central banks and tightening policy. Last week, she said that there were “no signs that this increase in inflation is becoming broad-based”. If you recall hearing similar declarations from Fed Chair Jerome Powell, your memory is spot on. Powell had insisted that inflation is transitory, but was forced to acknowledge in his congressional testimony last week that inflation would not ease anytime soon.
In September, Lagarde dismissed the notion of a taper by the Bank, stating “the lady isn’t tapering”. However, she may come under pressure to change her tune if eurozone inflation continues to rise. CPI hit a 10-year high in August of 3 per cent, above the ECB’s target of 2 per cent. Inflation could continue to surge, driven by higher energy prices, strong domestic demand and chronic supply-chain disruptions. Some analysts are projecting that inflation could rise as high as 4 per cent before the end of the year, and it’s difficult to picture the ECB standing idly by if inflation becomes red-hot and threatens to overheat the eurozone economy.
- On the downside, 1.1528 is under pressure as support. 1.1468 is the next support line
- 1.1692 is the next line of resistance, followed by 1.1792
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