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ECB’s Lagarde flags persistent inflation risks amid diverging energy and AI trends
The opposing effects of the energy shock and AI are complicating the current backdrop, European Central Bank (ECB) President Christine Lagarde said on Thursday, noting that “the current situation is made hard by the energy shock and AI pulling in opposite directions.”
On inflation, Lagarde described it as “Still necessary to apply tools to avoid inflation running away,” while saying she did not expect “US tariffs to be revisited right away.”
Lagarde outlines the key issues:
With the energy shock and AI exerting opposing forces, the current situation is difficult.
Separating supply-driven shocks from demand-driven shocks is very difficult.
Tools must still be deployed to prevent inflation from running out of control.
Between now and December, we will have numerous indicators to assess.
An immediate review of US tariffs is not expected.
Euro Performs Best Against Australian Dollar Today
The euro (EUR) recorded its strongest performance against the Australian dollar today. Its percentage changes against the major currencies listed are set out in the table below.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.06% | -0.33% | 0.28% | 0.84% | 0.35% | -0.17% | |
| EUR | -0.11% | -0.05% | -0.48% | 0.17% | 0.73% | 0.23% | -0.29% | |
| GBP | -0.06% | 0.05% | -0.40% | 0.22% | 0.78% | 0.29% | -0.23% | |
| JPY | 0.33% | 0.48% | 0.40% | 0.62% | 1.19% | 0.66% | 0.17% | |
| CAD | -0.28% | -0.17% | -0.22% | -0.62% | 0.57% | 0.05% | -0.45% | |
| AUD | -0.84% | -0.73% | -0.78% | -1.19% | -0.57% | -0.48% | -1.01% | |
| NZD | -0.35% | -0.23% | -0.29% | -0.66% | -0.05% | 0.48% | -0.49% | |
| CHF | 0.17% | 0.29% | 0.23% | -0.17% | 0.45% | 1.01% | 0.49% |
Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. To read EUR (base)/USD (quote), for instance, select the euro on the left and follow its row across to the US dollar; the cell at that intersection shows the percentage change for the pair.
ECB Explained
Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the eurozone’s reserve bank, setting the region’s interest rates and overseeing monetary policy. Maintaining price stability is the ECB’s main mandate, meaning inflation should remain at around 2%. Adjustments to interest rates are its principal means of meeting that objective: relatively high rates generally support a stronger euro, while the reverse also holds. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.
When conditions become extreme, the European Central Bank can turn to Quantitative Easing (QE). Under this policy, the ECB prints euros to purchase assets, typically government or corporate bonds, from banks and other financial institutions. The euro usually weakens as a result. Used as a last resort, QE is deployed when interest rate cuts alone are unlikely to deliver price stability. The ECB resorted to it during the Great Financial Crisis in 2009-11, again in 2015 as inflation remained persistently low, and during the COVID pandemic.
Once an economic recovery is under way and inflation begins to rise after QE, quantitative tightening (QT) reverses that policy. Under QE, the European Central Bank (ECB) supplies financial institutions with liquidity by purchasing government and corporate bonds. With QT, it ceases further bond purchases and no longer reinvests the principal repaid as its existing bond holdings mature. This is generally supportive, or bullish, for the euro.
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