Euro pushes higher as ECB chief Lagarde says inflation remains too high

European Central Bank (ECB) President Christine Lagarde announces a new monetary policy decision.

Frederick Florin | Afp | Getty Images

The euro traded higher against the US dollar on Wednesday, following comments from European Central Bank President Christine Lagarde that inflation “remains high”.

The euro was up about 0.2% against the US currency around 9 London time. It hit a five-week high of $1.0795, according to FactSet data.

“A significant policy adjustment is already behind us: Since July last year, we have raised the interest rate by 350 basis points. However, inflation is still high, and the uncertainty surrounding the way forward has increased. This makes a robust strategy important going forward.” Lagarde said in a speech on Wednesday.

“But the public can be sure of one thing: we will deliver price stability, and bringing inflation back to 2% in the medium term is not negotiable,” she added.

The European Central Bank decided last week to raise interest rates by a further 50 basis points, to avoid unrest in the banking sector. The central bank gave no guidance on future interest rate movements.

Lagarde noted on Wednesday a particularly uncertain environment.

“With high uncertainty, it is even more important that the interest rate path is data dependent,” she said.

Earlier this month, the ECB forecast that headline inflation will fall over the course of the year to reach 5.3% by the end of 2023 and 2.9% in 2024. These figures do not take into account the recent turmoil in the banking sector.

“These tensions have added new downside risks and have blurred the risk assessment. More generally, many of the assumptions in the projections, such as for fiscal policy and energy and food prices, are volatile. This implies further uncertainty around the baseline for both growth and inflation,” said Lagarde .

Her comments follow comments from Joachim Nagel, German central bank governor and ECB member, who noted that the fight against high inflation is “not over”. He told the Financial Times that “price pressures are strong and broad-based throughout the economy.”

ECB Chief Economist Philip Lane chimed in with a more dovish comment, saying on Wednesday that there are reasons to believe that underlying inflation targets will ease over time, according to Reuters.

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