Comments from Christine Lagarde, President of the European Central Bank's (ECB), in her opening remarks showed on Thursday that the euro's recent appreciation was discussed during September's policy meeting. However, citing sources with knowledge of the matter, Bloomberg reported that the Governing Council saw no need to overreact to euro gains.
With the initial market reaction, the EUR/USD pair jumped to a fresh daily high of 1.1890 and retreated slightly. As of writing, the pair was up 0.6% on the day at 1.1873.
"The Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook," Lagarde said but refrained from mentioning potential overvaluation of the shared currency. "In the near term, price pressures will remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints," she added.
While responding to questions from the press, Lagarde reiterated that the ECB does not target the exchange rate.
Earlier in the day, the ECB decided to leave the interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.
ECB Quick Analysis: Lagarde unleashes euro rally, virus and more QE may push it lower.
"We do not target the FX rate" – Christine Lagarde, President of the European Central Bank. These words, alongside a headline saying the ECB prefers to remain calm on the exchange rate, sent EUR/USD toward 1.19.
EUR/USD Forecast: Bulls took over with Lagarde’s optimism.
Words from the ECB´s head are hawkish, as suspected after yesterday rumours. Despite persistent uncertainty, Lagarde started her speech mentioning a strong rebound in macroeconomic activity, although noting that it’s still below pre-pandemic levels and adding that ample accommodative support is needed.
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