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Euro Rises as ECB's Lagarde Talks of "Strong" Rebound

Forex Sep 10, 2020 08:48AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- The euro rose on Thursday after the European Central Bank chose not to revise down its longer-term forecasts for growth and inflation, while President Christine Lagarde said the eurozone economy is seeing a "strong rebound" after its collapse in the second quarter.

By the end of Lagarde's press conference at 9:30 AM ET (1330 GMT), the euro was at $1.1898, up 0.8% on the day.

Lagarde said in the introductory statement to her press conference that the rebound was proceeding in line with the bank's previous expectations. The bank now expects a slightly smaller drop in gross domestic product this year, of 'only' 8%. 

Answering questions later, she added that there had been no discussion of any possible increase to the 1.35 trillion bond-buying scheme that is the cornerstone of its response to the pandemic. However, she said that she expected the full ‘envelope’ of 1.35 trillion euros to be used. The so-called Pandemic Emergency Purchase Program is set to run through June of next year.

While saying that short-term price pressures were largely negative, the bank left unchanged its forecast for inflation in 2022, at 1.3%, a choice that suggested it saw no immediate need to ease its monetary policy any further. Some analysts had speculated that the bank could revise down its longer-dated forecasts, preparing the ground for a possible extra round of stimulus in the future.

"Clearly, there is no deflationary risk" implied in the 2022 forecasts, Lagarde said in response to a subsequent question. 

Separately, newswires reported unnamed sources as saying that Lagarde had agreed that there was 'no need to over-react' to the euro's rally, which has taken it to its highest in over two years against the dollar.

There was no clear expression of concern in Lagarde's statement about the euro's strength, although she acknowledged it as one of a handful of factors putting downward pressure on prices in the short term. 

When pressed on the exchange rate later, Lagarde acknowledged somewhat more forcefully that: "Obviously the appreciation of our currency has an impact" on the medium-term outlook for inflation. "The external value of the euro is an important element of price setting in the euro area."

Analysts expressed concern at what appeared to some to be a distraction from the threat of too-low inflation. 

"The major risk coming into this press conference was downplaying low inflation and getting hung up on the Euro," said Robin Brooks, an economist with the Institute for International Finance in Washington. "Unfortunately, it looks like that is playing out."

Others were more sanguine, however.

"I don’t see anything particularly hawkish today in revising up the GDP forecast," said Gilles Moec, group chief economist with AXA, via Twitter. "The ECB was significantly below consensus in June."

 

Euro Rises as ECB's Lagarde Talks of "Strong" Rebound
 

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Comments (9)
Olivier Ve
lamborghinibull Sep 10, 2020 12:15PM ET
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that's really not what she said!
Karma Always Prevail
Karma Always Prevail Sep 10, 2020 11:14AM ET
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A small drop of GDP of 8%. hahah
Plopseven Schwartz
Plopseven Schwartz Sep 10, 2020 11:14AM ET
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America felt 32%. Mexico raised their debt ceiling by 20%. 8% is relatively good.
Strazdas Giesmininkas
Strazdas Giesmininkas Sep 10, 2020 11:14AM ET
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Plopseven Schwartz America didnt fall 32%. That was annualized rate calcualted based on what if all 4 quarters were like the second one. The actuall fall in US was ~9,5%
Wayne Ng
Wayne Ng Sep 10, 2020 11:12AM ET
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She spoke with concrete numbers and facts
Aditya Lodha
Aditya Lodha Sep 10, 2020 10:36AM ET
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strong rebound really. fake
Wayne Ng
Wayne Ng Sep 10, 2020 9:53AM ET
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Lagarde is much better than Mario
Skeptic Ahead
Skeptic Ahead Sep 10, 2020 9:29AM ET
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*BS* again and again... in the criminal gangster organisation.. IMF... ehhh sorry ECB now...
Kristof Naessens
Kristof Naessens Sep 10, 2020 9:17AM ET
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Nice peptalk by Lagar trying to talk the strong Euro down! Even more useless as Draghi.
yogananzi ananzi
yogananzi ananzi Sep 10, 2020 9:16AM ET
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coed
George Pichurov
George Pichurov Sep 10, 2020 9:11AM ET
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To me the beliefs of politicians have always been of upmost importance
Chris Garrett
Chris Garrett Sep 10, 2020 9:11AM ET
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hahaha,true true
 
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