Lagarde speech: Surge in covid cases adding to already heightened level of uncertainty

“Surge in coronavirus cases are adding to the already heightened level of uncertainty,” the European Central Bank (ECB) President Christine Lagarde said in a speech at Committee On Economic, Monetary Affairs on Thursday.

Additional comments

The key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build its own momentum.

It is thus more important than ever for monetary policy and fiscal policy to keep working hand in hand.

Latest surveys and high-frequency indicators signal that euro area economic activity lost momentum going into the fourth quarter.

The resurgence in COVID-19 infections is weighing on services sector activity in particular.

We will address the current phase of the crisis with the same approach and determination.

Overall, the euro area economy is expected to be severely affected by the fallout from the rapid increase in infections.

Projections will enhance our information set and allow a thorough reassessment of the economic outlook and the balance of risks.

We expect that headline inflation is likely to stay in negative territory until early 2021.

Reserving favourable conditions for as long as needed is key to support people’s spending, to keep credit flowing and to discourage mass lay-offs.

PEPP and TLTRO are likely to remain the main tools for adjusting our monetary policy.

Market reaction

The common currency showed little reaction to the comments from the ECB Chief Lagarde, as EUR/USD kept its range near 1.1850.

The spot currently trades at 1.1846, modestly flat on the day. Focus remains on the US covid updates.