European Markets Stable, ECB Watches FX Movements: Lagarde
WARSAW (Reuters) - Euro zone financial markets are functioning well despite global turbulence and the European Central Bank is ready to deploy its financial instruments to maintain financial stability if necessary, ECB President Christine Lagarde said on Friday.
Markets have endured a brutal week, marked by the eruption of an all-out trade war and a bond market selloff that has ignited fears of a global recession and shaken confidence in U.S. assets.
"In Europe and in the euro area in particular, we have observed that market infrastructures and... the bond market (are) functioning in an orderly fashion," Lagarde told a press conference in Warsaw.
The dollar slid to multi-year lows against most currencies on Friday and Treasuries sold off as investors sought safer haven assets, bracing for even more volatility in U.S. assets.
Lagarde said the ECB did not target any particular exchange rate but remained attentive to movements since they impact inflation and needed to be factored into economic models.
The euro's trade-weighted exchange rate hit an all-time high this week, which is likely to lower inflation since these movements make imports cheaper but could also slow economic growth since exporting goods becomes more expensive.
This is one of the key reasons why financial investors now think a rate cut by the ECB next week is essentially a done deal, to be followed by more easing later in the year.
Lagarde said the ECB was always ready to act and had a solid track record in devising new instruments when required.
"The European Central Bank is monitoring and is always ready to use the instruments that it has available, and has come up in the past with the adequate instruments and tools that were necessary in order to procure price stability, and of course financial stability, because one doesn't go without the other," Lagarde told the press conference.
(Reporting by Jan Strupczewski; Writing by Balazs Koranyi; Editing by Alex Richardson and Gareth Jones)
