Lagarde is positive on the strong Euro – Commerzbank

News of a potential Israeli attack on Iran's nuclear facilities is causing EUR/USD to rise this morning and shows that the euro is currently still favored as a safe haven against the dollar. However, this does not seem to be a problem, at least for the ECB. The strong euro is an opportunity, as it is a sign that Europe is perceived as a stable economic and political area. This was heard a few days ago from ECB President Christine Lagarde, Commerzbank's FX Head of FX and Commodity Research Thu Lan Nguyen notes.

Market may want to trade the Euro even higher

"These words must have come as a surprise to quite a few people. Firstly, it is generally unusual for the ECB president to comment on the exchange rate. After all, it is not a target variable of monetary policy. The fact that this is normally strictly adhered to is not least due to the fact that the G7 states have committed themselves to not manipulate their exchange rates, i.e. to leave them to market forces."

"Lagarde's comments on the recent appreciation of the euro are positive. Normally, the exact opposite would be expected. The G7 statement above explicitly states that a 'competitive devaluation' should be avoided. For good reason: politicians often prefer a weak currency, especially in difficult economic times. A stronger euro, on the other hand, currently counteracts the ECB's expansionary monetary policy. However, Lagarde's comments could now be interpreted by the market as an invitation to trade the euro even higher."

"The fact that the ECB seems to be happy about a strong euro right now smells to me like it wants to please a certain man in the White House. If Lagarde really means it when she says that a strong euro is not a problem for the ECB, she can now prepare herself for the fact that the single currency will be increasingly in demand as a safe haven in the future. Considering the likely disinflationary effect of the US tariffs, this may in fact be a problem."