Euro under pressure from Lagarde exit rumours

Speculation of an early exit for ECB President Lagarde has kept the euro under a bit of selling pressure since the breaking of the FT story on Wednesday morning.

While the source of the news is as credible as they come, it’s worth emphasising that this is so far little more than unsubstantiated chatter, with the ECB itself quickly reassuring markets that the former IMF chief remains “totally focused on her mission” and that no decision had been made on her future.

Of course, that doesn’t mean that the story is not without merit, and the fact that Lagarde has not denied the story says a lot.

The strategic rationale behind her potential early departure (see our full report for here more info), her age and the unfortunate reality that her tenure has not been without the odd misstep or two, adds plausibility to the story.

While even the notion of an early change in ECB leadership adds a modest downside risk to the euro, and could erode Lagarde’s authority and credibility during upcoming communications, we do not see it as a big factor at this stage for multiple reasons:

 a) with little appetite for a change in rates for the foreseeable future, any impact on ECB policy won’t materialise until 2027

b) it’s unclear whether a hawk (Knot or Nagel?) or a dove (Hernández de Cos?) will take over the reigns, and

c) as with the Fed, the ECB president is but one voting member, and rarely overrides the broader consensus.

For now, this morning’s PMI numbers will be of greater significance for the euro.