EUR

The euro fell against both the dollar and sterling on Monday as dovish comments from European Central Bank (ECB) President Lagarde and political uncertainty in Germany made the euro less attractive for investors.

Speaking yesterday in the European Parliament, Lagarde set out the ECB’s new policy strategy. Within this strategy, Lagarde noted that inflation projections will likely need to average above 2% in the short, medium and long term before a rate hike would be needed.

Euro bulls were left disappointed when Lagarde addressed current inflation levels for August which read 3%. Lagarde has seemingly dismissed the prospect of any immediate adjustment to monetary policy stating that the ECB’s view is that the recent spike in inflation is temporary before running below its target to average 1.7% in 2022 and 1.5% in 2023.

In Germany, the centre-left Social Democratic Party (SPD) have narrowly beaten outgoing Merkel’s centre-right Christian Democratic Union of Germany party in the recent election. Gaining just 25.7% of the vote the SPD will look to form Germany’s first three way coalition with the Green Party and FDP the likely suitors. The result means that outgoing Chancellor Merkel will remain until the coalition has formed. Lengthy negotiations are expected to form a coalition, and the uncertainty it brings is likely to weigh on the euro in the near term.

Key announcements

13:00 – EUR – ECB President Lagarde’s Speech
15:00 – USD – Fed Chair Powell testifies