Euro falls on new European lockdowns, dovish Lagarde

EUR/USD slipped back below 1.1300 on Friday morning as a speech from European Central Bank President Christine Lagarde and new lockdown measures in Austria weighed on the single currency.

Austria lockdown – Germany to follow?
The Austrian Chancellor, Alexander Schallenberg, announced that the country would be going into a full national lockdown, just days after imposing a lockdown on unvaccinated citizens.

The new, national lockdown will last for a maximum of 20 days, and means citizens will be required to work from home and non-essential shops will close, however, schools will remain open for children who require face-to-face learning.

The Chancellor also announced it would be a legal requirement to get vaccinated from 1st February next year.

The measures come as Austria’s COVID cases have ballooned to a new record.

The latest measures have arrived less than a week after the Netherlands introduced partial restrictions.

The question now is whether the European Union’s largest member will follow suit.

In a press conference on Friday, the German Health Minister Jens Spahn said that the country is in a national emergency, adding that they could not rule out another lockdown in Germany.

Lagarde Speech
Further weighing on the EUR was a speech by Christine Lagarde. The ECB President said that the central bank needs to focus on medium-term inflation, not the level it is at today.

“When inflation pressure is expected to fade – as is the case today – it does not make sense to react by tightening policy,” Lagarde said. “The tightening would not affect the economy until after the shock has already passed.”

Inflation in the Eurozone, as measured by the Consumer Price Index, rose to 4.1% in annual terms in October, the highest level since 2008.

EUR weakness
The speech and lockdown measures have seen the EUR decline against a number of major currencies. EUR/USD has dropped below 1.1300 and is now testing the low seen earlier this week.

EUR/CHF has fallen below 1.0500 for only the second time since 2015, the year the Swiss National Bank removed the floor in the currency cross. The only other time EUR/CHF dropped below this level was a brief drop to 1.0497 in May last year.

Stocks and oil have not been immune to the sell-off either. At 10:51GMT, Austria’s ATX index trades lower by 2.2%, while most major indices across Europe are also nursing losses. The FTSE 100 is down 0.3%, the DAX and CAC are both lower by 0.2%.

WTI and Brent crude futures have both dropped by around 3% as rising COVID cases could threaten the recovery in oil demand, especially if international travel restrictions are reinstated.