Euro Impacted By Lagarde’s Warning On Inflation

The Euro gave back earlier gains on Wednesday after European Central Bank President Christine Lagarde said the era of ultra-low inflation that preceded the pandemic is unlikely to return.

Speaking at a panel at the ECB Forum in Sintra, Portugal, alongside US Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey, Lagarde added that central banks need to adjust to significantly higher price growth expectations.

The Euro was last down 0.41% to $1.0475. It had dropped to as low as $1.0486 earlier in the day after data showed June prices in the German state of North Rhine–Westphalia (NRW) had been 0.1% lower than in May, but had recovered after a high readout of Spanish inflation data.

The ECB is widely expected to raise interest rates in July for the first time in a decade, following its global peers, to try to cool accelerating inflation, though economists are divided on the magnitude of any hike.

The US Dollar Index, which measures the greenback against six counterparts, ticked up 0.412% to 104.880 with investors seeking safety in US assets as stocks declined globally due to the mounting risk of a recession. The dollar index stayed, however, below the two-decade high of 105.79 struck two weeks ago.

The dollar was buoyed on comments from Powell during Wednesday’s panel that while there is a risk that Fed interest rate hikes will slow the economy too much, the bigger risk is persistent inflation that starts to let public expectations about prices drift higher.