Euro pushes higher as ECB chief Lagarde says inflation is still too high

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

Frederik Florin | Afp | Getty Images

The euro was seen trading higher against the US dollar on Wednesday following comments from European Central Bank President Christine Lagarde that inflation is “still high”.

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

“We have already had a major policy adjustment: since July last year we have raised interest rates by 350 basis points. However, inflation is still high and uncertainty about the course to follow has increased. This makes a robust strategy for the future essential.” Lagarde said in a speech Wednesday.

“But the public can be sure of one thing: we will ensure price stability and it is non-negotiable to bring inflation down to 2% over the medium term,” she added.

The ECB decided last week to raise its interest rates by another 50 basis points, shaking off the turmoil in the banking sector. The central bank gave no indication of upcoming interest rate movements.

During his speech on Wednesday, Lagarde noted a particularly uncertain environment.

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

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

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

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

ECB chief economist Philip Lane intervened with a more dovish remark, saying on Wednesday there are reasons to believe that underlying inflation measures will ease over time, Reuters reported.