Lagarde's Hawkish Tone Fails to Boost Euro Amid Energy Crisis

Despite a hawkish tone from European Central Bank President Christine Lagarde on Thursday, October 1, the euro failed to gain significant support and remained near its lows since late May at around 1.1325 against the U.S. dollar.

Lagarde emphasized that the current energy shock triggered by Middle East conflicts could prompt further interest rate hikes if necessary to prevent higher energy costs from permeating the broader economy and pushing up inflation.

She stated that price stability remains the top priority for the European Central Bank, and the primary threat today is the energy crisis linked to the conflict in the Middle East. The impact of rising raw material costs on the economy is often overlooked, Lagarde noted.

The current deposit facility rate has been raised to 2.50%, while the main refinancing rate and marginal lending rate have risen to 2.65% and 2.90%, respectively. Lagarde acknowledged that higher interest rates could put pressure on financing and economic growth, and therefore the European Central Bank will closely monitor the strength of economic activity before taking action.