Lagarde: "Dollar Weakness Amid Uncertainty Due to Declining Trust in U.S. Policies"

Christine Lagarde ECB President. Photo by Yonhap News

Christine Lagarde, President of the European Central Bank (ECB), recently stated that the strengthening of the euro against the dollar is mainly due to the unpredictable economic policies of U.S. President Donald Trump. She assessed that, for Europe, this phenomenon could actually present an opportunity.

According to Yonhap News and other foreign media on the 18th, President Lagarde said in an interview with the French media outlet La Tribune Dimanche, "Normally, when uncertainty is high, the dollar should strengthen, but this time, the euro is actually gaining strength against the dollar." She added, "This can be interpreted as a result of growing uncertainty and declining trust in U.S. policies in parts of the financial market."

President Lagarde emphasized, "This situation can serve as an opportunity for Europe rather than a threat," and added, "We should use this as a chance to further deepen the integration of the European Union (EU)."

She also noted, "In the United States, fundamental institutions such as the rule of law, the judicial system, and trade norms have recently come into question, and new uncertainties are emerging every day." She evaluated that, "In contrast, Europe is perceived as a stable political and economic bloc with a trusted currency and an independent central bank."

She explained that President Trump's inconsistent economic policies are causing the dollar to weaken, and as a result, the euro is relatively strengthening.

President Lagarde also expressed concern about President Trump’s continued demands for the U.S. central bank, the Federal Reserve (Fed), to lower interest rates. She warned, "The independence of central banks is a very fundamental principle," and added, "Historically, every case where a central bank was under the influence of fiscal authorities ended poorly."

Meanwhile, regarding the current state of the European economy, she dismissed pessimistic views. She said, "Employment is being maintained, purchasing power is recovering, and inflation remains low," and forecasted, "Although the pace may be slow, consumption and investment will gradually revive."

Previously, ECB Vice President Luis de Guindos also stated that the euro could potentially replace the dollar as the key reserve currency within the next few years.