ECB President Christine Lagarde suddenly raised the issue of interest rate cuts in an interview with France 2 TV.

The euro weakened against all other majors in the New York session on Friday (12/January). There were no high-impact economic data releases from continental Europe, but the euro was hit by a statement from ECB President Christine Lagarde.

eurusd

Christine Lagarde has been known as a figure who persistently recommends that interest rates remain high for a longer time to suppress the Eurozone inflation rate. At the ECB announcement last December, she emphasized that it was too early to discuss interest rate cuts.

Lagarde's hawkish stance contributed greatly to the EUR/USD rally at the end of last year. However, she suddenly broached the subject of interest rate cuts today in an interview with France 2 TV.

"I don't think interest rates will continue to rise unless (there are) further shocks or unexpected data. And if we win the fight against inflation, and if we are confident that inflation will reach 2%, then at that point interest rates will start to fall," Lagarde said.

Lagarde did not elaborate on when the rate cut would begin. Nevertheless, market participants took her statement as a dovish signal worth noting.

The market believes the ECB will start lowering interest rates in May 2024. European stock markets immediately climbed, while the euro exchange rate fell.

EUR/JPY slid around 0.5% to 158.50s, EUR/CHF was stuck in the 0.9340s range, while EUR/GBP was almost flat in the 0.8590s range as concerns over the risk of a mild recession in the UK hit Sterling. EUR/USD was also stuck in the 1.0950s range due to the poor release of US PPI inflation data.