Euro / Dollar Recovery Helped as ECB Stays "Data Dependent" Course

• EUR/USD builds on recovery of 1.12 in late trade
• After ECB says policy to remain data dependent
• With no indication of retreat from normalisation
• March forecast round key for EUR/USD outlook

Image: © European Union, reproduced under CC licensing

The Euro to Dollar exchange rate built further on its recovery back above 1.12 late in the final session of the week, aided by remarks from European Central Bank President Christine Lagarde, who indicated the ECB could be likely to stay the course toward monetary policy normalisation.

Europe’s single currency had traded mere ticks away from the round number 1.11 on Thursday amid the initial fallout from Russia’s attempted conquest of Ukraine, although it rallied strongly amid a global rebound on Friday and gained an extra tailwind in the last hours of the European session.

“As I just said, we have a two percent symmetric medium-term objective, we are data-dependent and we are going to look at data very carefully,” President Christine Lagarde told a press conference following a European Council meeting of finance ministers and central bankers.

“We will include in that the geopolitical development, which clearly will have a bearing. But we are driven by our mandate which is price stability and financial stability, and we will make those decisions come the next monetary policy meeting and then subsequently,” Lagarde also said.

Above: Euro / Dollar rate shown at hourly intervals.

• EUR/USD reference rates at publication:
  Spot: 1.1254
• High street bank rates (indicative band): 1.0860-1.0940
• Payment specialist rates (indicative band): 1.1153-1.1198
• Find out more about market-beating rates and service, here
• Set up an exchange rate alert, here

Previous to the events of recent days the Euro had been boosted throughout the early weeks of February after President Lagarde said following the ECB’s latest policy meeting that Eurozone inflation risks are shifting higher, before also declining to reiterate an earlier opinion that Europe’s interest rates would be unlikely to rise this year.

That led financial markets to become more confident in betting that an end of the negative interest rate era could be near, although the Russian incursion into Ukraine has multiple implications for the European and global economic outlooks.

It had led some in the financial markets to question this week whether such assumptions about interest rates could weather a conflict in Europe.

“The EUR managed to squeeze off of yesterday’s low convincingly from a technical point of view and the rebound back above the 1.1121 (Jan low) eases immediate downside risks, we think,” says Shaun Osborne, chief FX strategist at Scotiabank.

“Trend oscillators are bearish across short, medium and long term studies; EUR rallies are liable to remain shallow and short-lived for now,” he adds.

{wbamp-hide start}

{wbamp-hide end}{wbamp-show start}{wbamp-show end}

The Euro-Dollar rate had already regained the 1.12 handle amid a broad rebound in financial markets elsewhere, which some analysts attributed to the limited nature of economic sanctions adopted in Europe, the U.S. and UK as a result of Russia’s incursion into Ukraine.

“This could plausibly reflect several factors: a view that the sanctions packages unveiled yesterday were perhaps less strict – especially with regards to Russia’s energy sector – than had been expected; a belief that the war may end quickly; or simply that some asset prices – notably US equities – had already dropped a long way this year, and were due a rebound,” says Thomas Mathews, a markets economist at Capital Economics.

The measures announced thus far aren’t expected to have any impact on the energy sector, which is the key driver of a substantial current account surplus that underpins the Russian economy; instead many of the sanctions are aimed at Russian business people and some leaders.

Friday’s rally in international markets came as Russian forces bore down on Ukraine’s capital city, leading President Volodymyr Zelenskyy to call for assistance from European neighbours.

Above: Euro / Dollar rate shown at daily intervals.