ECB Lagarde: Massive monetary tightening is not necessary

ECB President Christine Lagarde said that the Eurozone does not yet require massive monetary tightening. EUR/USD fell in response to this statement.

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The strengthening of the euro against the US dollar was corrected after ECB President Christine Lagarde quelled speculation of an interest rate hike that had been buzzing about since the end of last week. In early Tuesday (08/February) trading session, EUR/USD slipped 0.21% to 1.1423.

After expressing the ECB's flexibility in raising interest rates on Sunday, ECB President Christine Lagarde again opened her voice. In front of the European Union parliament, this time Lagarde said that massive monetary tightening was not yet necessary in the Eurozone because inflation would again fall and stabilize in the range of 2%.

"The odds that inflation will stabilize towards our target are increasing and continue to increase," said Lagarde, "There is no signal that inflation will continue and be significant above our target over the medium term; which is what requires policy tightening. "

Lagarde is optimistic that the Eurozone economy will not experience overheating as feared in other developed countries. "This increases the likelihood that inflationary pressures will ease before they take root. Thus, it could allow us to meet our 2% target over the medium term," Lagarde said.

US Inflation in focus this week

The current movement of EUR/USD is strongly influenced by the policies of the Fed and the ECB. For this week, fluctuations in the US Dollar and Euro will again be determined by US Inflation data which will be released on Thursday. The strengthening US Consumer Inflation data will provide additional energy for the bullish US Dollar.

"EUR/USD is a tug-of-war between these two forces (the Fed and the ECB). However, with the CPI data due in the US, we may see the US dollar recover a bit," said Kathy Lien, analyst at BK Asset Management. .

A similar comment was also made by Joe Manimbo from Wester Union Business Solution. Last week, the ECB was already propping up the euro's gains. "Now, the focus has shifted to US inflation. The market will use the data to estimate whether the Fed will raise rates by 25bp or 50bp next month," said Manimbo.