Euro-Dollar Softer, Lagarde Speech Cited

Above: File image of ECB President Christine Lagarde. Image: Andreas Reeg/ECB.

The Euro was softer against the Dollar and other major currencies after the President of the European Central Bank (ECB) raised the odds of a June interest rate cut.

ECB President Christine Lagarde told the ECB Watchers Conference that interest rate cuts could come before all the "relevant" economic data conclusively points to inflation falling to 2.0% on a durable basis.

"Given the delays with which these data become available, we cannot wait until we have all the relevant information. To do so could risk being too late in adjusting policy," said Lagarde.

The ECB has been clear that it wants to see slowing wage growth, a continued fall in inflation, and new internal projections that confirm that price growth will return to its 2% target before cutting interest rates.

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The Euro has tended to fall as market expectations for ECB rate cuts have firmed, helped by explicit commentary from ECB board members over recent weeks. Where the Fed and Bank of England's guidance are more ambiguous, markets are increasingly confident the ECB will act in June.

Much emphasis has been placed on the outcome of this spring's wage negotiations. "We will receive data on negotiated wage growth in the first quarter of this year at the end of May," says Lagarde.

"In the coming months, we expect to have two important pieces of evidence that could raise our confidence level sufficiently for a first policy move," she adds.

The Euro to Dollar exchange rate was quoted at a quarter of a per cent lower on the day at 1.0840 in the wake of the comments.

"ECB President Lagarde gave markets greater confidence in the chance of a June rate cut, prompting some further downside in EURUSD," says Joe Tuckey, Head of FX Analysis at currency specialists, Argentex Group PLC.

"Whilst she noted wage growth is slowing, further evidence of this will be required, but that lags in data means the ECB may not be able to wait until it has every piece of evidence in front of it!" adds Tuckey.

Lagarde concluded her speech by firmly placing a finger on a June start date: "we will know a bit more by April and a lot more by June."