Euro Strengthens 10% Against Dollar Amid US Policy Uncertainty

European Central Bank President Christine Lagarde has highlighted the recent strengthening of the euro against the US dollar, attributing it to the unpredictable policies of Donald Trump. This shift, she noted, is counterintuitive as the dollar typically strengthens during times of uncertainty. However, the euro's appreciation is understandable given the loss of confidence in US policies and the resulting uncertainty.

Lagarde emphasized that Europe is perceived as a stable economic and political region, with a robust currency and an independent central bank. This stability contrasts with the US, where the rule of law, judicial system, and trade rules are under scrutiny. She underscored the significant progress in the development of the digital euro and the single capital market, areas where she has seen unprecedented momentum during her tenure. Lagarde also stressed the importance of regulatory coordination, similar to what has been achieved in the banking sector.

The euro's strength this year is largely due to investor concerns over US policy, including unpredictable tariff policies that could harm the US economy and threats to the independence of the Federal Reserve. Lagarde is not the only European Central Bank policymaker to see this as an opportunity. Her deputy, Luis de Guindos, suggested that if Europe deepens its integration, the euro could become an alternative reserve currency to the dollar. Similarly, Executive Board member Isabel Schnabel emphasized the historic opportunity to enhance the euro's international role.

Lagarde warned against challenging the autonomy of monetary policy authorities, stating that central bank independence is crucial for the monetary and financial health of a nation or group of nations. She cited examples where central banks under fiscal control have led to poor outcomes. Regarding Europe's economic situation, Lagarde expressed optimism, noting stable employment, increasing purchasing power, and declining inflation. She expects consumption and investment to rebound, despite the uncertainty caused by US government statements that have dampened confidence and slowed recovery.