Euro strengthens on hawkish Lagarde comments

The euro trended broadly higher on Tuesday, in response to comments by European Central Bank (ECB) President Christine Lagarde.

Meanwhile, trade in the pound is mixed this morning. GBP/EUR is muted at €1.1614 and GBP/USD is sliding to $1.2721. GBP/CAD is flat at CA$1.6808, while GBP/AUD climbs to AU$1.9147 and GBP/NZD surges to NZ$2.0857.

Looking ahead, will a panel with the heads of the ECB, Bank of England (BoE) and Federal Reserve infuse volatility into the currency market today?

What’s been happening?

The euro firmed through yesterday’s session, following remarks by the European Central Bank’s Christine Lagarde.

Speaking at the start of the bank’s annual Sintra Forum, the President of the ECB said more action needs to be taken to return inflation to its 2% target in ‘a timely manner’.

Lagarde’s comments lifted the euro as it bolstered expectations the ECB will continue to raise interest rates in the coming months, despite signs headline inflation in the Eurozone is cooling rapidly.

Meanwhile, the US dollar weakened on Tuesday following efforts by the People’s Bank of China (PBoC) to bolster the strength of the Chinese Yuan.

The PBoC surprised markets by setting a stronger-than-expected trading band for the Yuan, while state banks moved to purchase the currency using US dollar reserves.

At the same time, trade in the pound was mixed yesterday. Sterling was supported by an improving market mood but struggled to make any meaningful gains amid ongoing concerns over the UK’s economic outlook.

What’s coming up?

Centre stage today will be the highlight of the ECB’s Sintra Forum – a panel including the ECB’s Lagarde, BoE Governor Andrew Bailey and Federal Reserve Chair Jerome Powell.

The panel will see the heads of the world’s major central banks weigh in on how high inflation across the globe is shaping monetary policy.

Amid concerns the BoE could tip the UK into a recession, particular focus is likely to be on Bailey’s comments. Could the pound rally if he pushes back against the perception?

Powell, meanwhile, might offer some hints as to the US central bank’s next moves. Any hints the Fed may be close to the end of its hiking cycle could pull the US dollar lower.

Finally, if Lagarde echoes her comments from yesterday, the euro is likely to maintain a bullish trajectory.