Diverging energy and AI trends: ECB’s Lagarde warns of persistent inflation risks

Speaking on Thursday, European Central Bank (ECB) President Christine Lagarde highlighted conflicting pressures from energy and AI, saying that “the current situation is made hard by the energy shock and AI pulling in opposite directions.”

On inflation, Lagarde said it was “Still necessary to apply tools to avoid inflation running away,” while adding that she did not expect “US tariffs to be revisited right away.”

Main Points:

Opposing forces from the energy shock and AI are complicating the current situation.

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

Policy tools remain necessary to prevent inflation from spiralling.

Many indicators will become available to us between now and December.

An immediate review of US tariffs is not expected.

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

Euro Performance Today

The Euro (EUR) recorded its strongest performance against the Australian Dollar today. The table below sets out its percentage changes against the listed major currencies.

	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: Key Questions Answered

The ECB's Role and Its Impact on the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank. Responsibility for the region's interest rates and monetary policy rests with the ECB. Price stability is its core mandate, meaning inflation should remain at around 2%. Raising or cutting interest rates is its main means of meeting that goal. Higher relative interest rates generally support a stronger Euro; lower rates tend to have the opposite effect. Monetary policy is decided by the ECB Governing Council, which meets eight times a year. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

Quantitative Easing (QE): Implications for the Euro

Under extreme conditions, Quantitative Easing (QE) is a policy option available to the European Central Bank. It involves creating Euros to purchase assets, typically government or corporate bonds, from banks and other financial institutions. The Euro usually weakens as a result. This last-resort measure is used when interest rate cuts alone are unlikely to deliver price stability. The ECB deployed QE during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the COVID pandemic.

Quantitative Tightening (QT): Implications for the Euro

Once an economic recovery is under way and inflation begins to rise following QE, the reverse process, Quantitative Tightening (QT), is implemented. Under QE, the European Central Bank (ECB) supplies financial institutions with liquidity by purchasing government and corporate bonds. Under QT, it ceases further bond purchases and no longer reinvests principal repayments from its maturing bond holdings. This generally supports the Euro, making it a bullish influence on the currency.