Inflation risks remain as energy and AI trends diverge, warns ECB’s Lagarde

Opposing pressures from the energy shock and AI are complicating the current environment, European Central Bank (ECB) President Christine Lagarde said in remarks reported 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 does not expect “US tariffs to be revisited right away.”

What were the main takeaways?

With the energy shock and AI exerting opposing pressures, the current situation is challenging.

Separating supply-driven shocks from those driven by demand is very difficult.

Policy tools remain necessary to prevent inflation from spiralling.

Between now and December, we will have numerous indicators available.

An immediate review of US tariffs is not expected.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

How Is the Euro Performing Today?

Against the major currencies listed below, the Euro's strongest performance today was against the Australian Dollar. The table presents the Euro's (EUR) percentage changes against each currency.

	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 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. For instance, choosing the Euro on the left and following its row across to the US Dollar gives the percentage change for EUR (base)/USD (quote) in the corresponding cell.

ECB: Common Questions

How does the ECB's role shape the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank, setting interest rates and overseeing monetary policy across the region. Maintaining price stability is the ECB's central mandate, meaning it aims to keep inflation at around 2%. Interest rate increases and cuts are its main means of achieving this goal. A relatively high level of interest rates generally strengthens the Euro, while the reverse tends to weaken it. 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.

How does Quantitative Easing (QE) work, and what does it mean for the Euro?

Under extreme conditions, the European Central Bank may turn to Quantitative Easing as a policy instrument. Through QE, the ECB prints Euros to purchase assets, generally government or corporate bonds, from banks and other financial institutions. The Euro typically weakens as a result. When interest rate cuts alone are unlikely to deliver price stability, QE becomes a last-resort measure. The ECB deployed it during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the COVID pandemic.

How does Quantitative tightening (QT) differ from QE, and how does it influence the Euro?

As the reverse of QE, Quantitative tightening (QT) follows an easing programme once economic recovery is under way and inflation begins to rise. Under QE, the European Central Bank (ECB) supplies liquidity to financial institutions by buying government and corporate bonds from them. With QT, however, it ceases further bond purchases and no longer reinvests principal received as bonds in its existing portfolio mature. This is generally supportive, or bullish, for the Euro.