EUR/USD’s decline halted at 1.1650, around the same support level as on September 25. European Central Bank President Christine Lagarde told the European Parliament that the disinflation process was over, and that the ECB was in a good place. Despite reiterating the ECB’s data-dependent stance, Lagarde reaffirmed the market’s expectation for the deposit facility rate to stay unchanged at 2% through 2026. Growth in 2H25 is expected to be slower than in 1H25, with sluggish export performance amid positive momentum in the services sector. She added that the drag from higher tariffs, a stronger exchange rate, and increased global competition was expected to fade in 2026.
Lagarde renewed her call for the euro to assume a greater global role, a position now supported by Bundesbank President Joachim Nagel and Bank of France Governor Francois Villeroy de Galhau. Nagel also joined Lagarde in supporting the joint financing of EU defence spending. Lagarde reckoned that the EU could go further in increasing the 20% share of global trade invoiced in euros by forging new trade agreements beyond the 72 countries, representing almost 40% of the world’s GDP, with which the EU was already a leading trading partner.
That said, EUR/USD could still test the next support level around 1.16 as France’s political crisis drags on. President Emmanuel Macron has tasked outgoing Prime Minister Sebastien Lecornu with holding last-ditch talks on the 2026 Budget, but resistance is stiff to breaking the impasse with the parties. Macron will likely avoid a snap election pushed by the far-right National Rally party. Instead, he could, under pressure, pivot to a centre-left solution. The Socialists are not advocating new elections and are interested in leading the next government. Lagarde, for her part, said European institutions were closely monitoring the situation and hoped France would submit a budget to the National Assembly by the October 13 deadline.
Quote of the Day
“The Nobel Prize in Economics is an incredible recognition for the work that my students, colleagues, and I have done over the years. We all worked hard, but we were also lucky that the financial applications were so important.”
Robert F. Engle
October 8 in history
In 2003, Clive Granger and Robert F. Engle were awarded the Nobel Prize in Economic Sciences “for methods of analyzing economic time series with time-varying volatility (ARCH)”.
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