The easing measures announced by the European Central Bank did not lower the euro, which gained 0.4% to $1.2130 on Thursday. Markets believe that the ECB is not in a position to reverse the progress of its currency, at most to slow it down.

"We are ready to adjust all our instruments in view of exchange rate developments. We have not closed the door to a rate cut," Lagarde said at the European Central Bank(ECB) press conference. "We follow exchange rate developments very carefully. Warnings with no effect on the euro. It rose 0.4% to 1.2130 and reached a high of $1.2160. It gained 1% against the pound and 0.5% against the yen.

Rates unchanged

The ECB has opted for the status quo on rates. A further decline would have had little impact on the euro. "Once interest rates are in negative territory and the surprise effect is dissipated, the continued decline generally has little impact on the currency," said Dominic Bunning, head of European foreign exchange research at HSBC. After the introduction of this measure in their countries, Japan, Switzerland and Sweden even saw their currencies increase within three months. »

In June 2014, the ECB was the first major central bank to cut its rate into negative territory to -0.1%. But of the 5 rate cuts in negative territory, only the first two, in 2014, were able to push back the European currency.

Strong euro, weak dollar

Markets believe that the ECB is not in a position to reverse the upward trend of the euro-dollar but at best to slow its progress. Its rise against the greenback is all the easier as the world's leading currency is plagued by doubt. Since the November 3 presidential election, the U.S. currency has lost 3%. Markets believe that with a divided Congress blocking measures by the Biden administration, the Federal Reserve (Fed) will be on the front line to boost growth and jobs.

Natural area

Further easing of the Fed's monetary policy could push the dollar lower against the euro, which will settle permanently in its natural zone of evolution between 1.20 and 1.30 dollars. Over the past 17 years, the European currency has registered at least once in this zone during the year, with two exceptions in 2016 and 2019, when it settled below $1.20. The euro also moved below this level during its first four years (1999-2004), the era of the weak euro, when it recorded its lowest ever ($0.84).

competitiveness

The decline of the euro over the past month against emerging currencies allows its overall exchange rate (against the currencies of its trading partners) to limit its rise. "It is only 0.5% higher than the ECB's forecast for 2021. It can thus better tolerate the rise of the euro-dollar as long as emerging currencies continue to rise," said Andreas Steno Larsen, head of rates and currencies strategy at Nordea. This year, the euro is up only 1.3% against the Chinese currency at 7.91 renminbi. This modest appreciation will allow European exporters to benefit more from the economic recovery in China (their second largest export market) than in the United States, where the euro's nearly 8% jump against the dollar further hampers their competitiveness.