The ECB's chief economist, Philip Lane, said that "the euro-dollar exchange rate matters" in the eyes of the ECB, stopping the rise of the European currency in its tracks. Waiting for the ECB meeting next Thursday...

The euro's ascent was halted on Wednesday by a statement from ECB chief economist Philip Lane saying "the euro-dollar exchange rate matters" in the eyes of the ECB. On Wednesday evening, the euro yielded 0.58% to $1.1842, after having exceeded the $1.20 threshold the day before, posting a gain of 12% for 5 months, the highest for two years. The dollar index, which measures the evolution of the greenback against a basket of six currencies, including the euro, regained Wednesday evening 0.44% to 92.75 points.

Although at first glance Philip Lane's remarks may seem almost innocuous, they had a significant psychological effect on investors, signaling that the ECB was not ready to see the European currency appreciate to a level that penalizes euro area exports. It is therefore very rare for the European Central Bank to comment on currency trends. This fall in the euro was also welcomed on Wednesday by the European stock markets, the EuroStoxx 50 jumping 1.84% and the CAC 40 climbing 1.9%.

Negative inflation in the euro zone in August, the ECB expected

The markets have thus started to speculate on new support measures from the ECB, which will hold its back-to-school meeting next week, Thursday, September 10, which will be followed by a press conference by its president Christine Lagarde. Any further easing gesture would further weaken the euro, while giving a boost to the eurozone economy, where prices fell in August for the first time in 4 years. Inflation thus came out negative by 0.2% in August, according to Eurostat, raising the specter of deflation against the backdrop of the coronavirus crisis...

In addition, Germany, the region's largest economy, showed signs of weakness on Wednesday, with July's surprise retail sales drop of 0.9% month on month, while economists had forecast an increase of 0. .5%. In June, sales had already fallen by 1.9%.

German Finance Minister Olaf Scholz said Wednesday that the European economy is showing signs of recovery but the worst may not be over.

The Fed's new strategy could permanently weaken the dollar

Many economists believe that in the medium term, the dollar should remain in a downtrend, as further easing measures from the Fed are expected. The dollar has thus accelerated its decline for a week, after the presentation by the US Federal Reserve of its new monetary strategy.

At the Jackson Hole symposium, Fed Chairman Jerome Powell indicated on August 27 that the Fed would no longer apply a preemptive rate hike strategy in the event of a temporary rise in inflation above the target of 2% from the Fed, or tensions in the job market. He thus signaled that the key rates should remain at the floor for an extended period...

On Wednesday, the Fed's Beige Book reinforced this point of view by signaling that the economic rebound ran out of steam in August in the United States, particularly on the employment front. The day before, one of the governors of the Fed, Lael Brainard, had said that the institution would have to take new measures to support growth in the coming months, probably after the presidential election in November.