The euro weakened markedly on Monday in interbank trade, in reaction to comments by Christine Lagarde, who said the ECB still has a wide range of tools to support economic growth. The President of the ECB added that the institution was going to integrate the euro-dollar parity in the implementation of its monetary policy, suggesting that the ECB will not accept to see the European currency appreciate further...

Monday evening on the interbank markets in New York, the euro fell 0.7% to $ 1.1755. The dollar index (which measures its evolution against 6 reference currencies) strengthened for its part by 0.8% to 93.67 points.

A "very uncertain, irregular and incomplete" recovery

As European stock markets unscrewed Monday in the face of the outbreak of new cases of coronavirus in Europe, Christine Lagarde made it clear that the central bank was ready to act again if necessary, and described the economic recovery as "very uncertain". "Has the ECB burned all its ammunition? No, absolutely not," said Christine Lagarde during a videoconference meeting of the Franco-German Parliamentary Assembly.

“While available data points to a strong rebound in the third quarter, the strength of the recovery remains highly uncertain, uneven and incomplete. It continues to largely depend on the future course of the pandemic and the success of containment policies,” she continued.

"The uncertainty in the current environment, however, requires a very careful assessment of new information reaching us, including on the exchange rate, and its implications for the medium-term inflation outlook."

Markets are expecting the ECB to announce a further extension to its Pandemic Contingency Plan (PEPP), which would come into effect in December. This plan had been endowed with 750 billion euros in March, before being increased to 1,350 MdsE in June.

The fear of a 2nd wave of Covid-19

The euro was also weighed down on Monday by fears of a second wave of coronavirus, which threatens to stem the fragile economic recovery. Faced with the rise in Covid-19 cases in recent weeks, many European countries have had to tighten restriction measures in their major cities, in an attempt to stem the rebound in Covid-19 cases. In France, Nice, Lyon, Marseille and Toulouse have notably restricted gatherings and sporting and cultural events and the opening hours of bars and restaurants.

In Spain, entire districts of Madrid have been reconfigured for two weeks, a measure which concerns 850,000 people. In the United Kingdom, the epidemic alert level was raised on Monday from 3 to 4 (risk "high or increasing exponentially") and the government is considering localized containment measures.