Could Lagarde leave the ECB before 2027?

[Ben Graham]

While the euro continues to struggle, noticeably yielding ground to the US dollar, financial markets are circulating rumors of imminent leadership changes at the European Central Bank. Media reports suggest that ECB President Christine Lagarde may step down before the end of her full eight-year term, which runs until October 2027.

Lagarde's decision is said to be linked to a desire to resign before next April's French presidential election. Such a timely departure would, apparently, create favorable conditions for President Emmanuel Macron and German leader Friedrich Merz to collaborate on finding and appointing a successor. Although the precise timing of a possible resignation remains unknown, the mere suggestion of such a development is already influencing market expectations.

This potential change of leadership at the ECB comes at an opportune moment when the European economy feels reasonably confident and no longer faces acute problems with either inflation or the labor market. The appointment of a new ECB president would be a key factor determining the future trajectory of euro-area monetary policy, including decisions on interest rates and economic support programs.

Answering journalists' questions about the rumors, Banque de France governor Francois Villeroy de Galhau took a cautious stance. "I read a rumor about Lagarde, I discovered it, it doesn't seem an information to me, I'll leave it to the ECB to comment, but it's a rumor," he told parliamentarians in Paris.

The ECB said the following on the matter: "President Lagarde is totally focused on her mission and has not taken any decision regarding the end of her term," an ECB spokesperson said.

There was also no market reaction: the euro fell only slightly, and the dollar strengthened against most major currencies. Many market participants apparently decided it is too early to draw conclusions about a potential impact on the single European currency.

Recall that speculation about Lagarde's early departure has surfaced before; last June, she sought to dispel such reports by saying she was determined to complete her mandate. In a recent Bloomberg interview, she said that she was "not one to give up."

A technical outlook for EUR/USD suggests that buyers should consider reclaiming 1.1800. That would open the way to test 1.1830. From there, a move to 1.1860 is possible, although advancing beyond that without support from major players would be difficult. The extended target is the high at 1.1890. On a decline, meaningful buying interest is likely around 1.1770. If buyers do not appear there, it would be prudent to wait for a new low at 1.1740 or to open long positions from 1.1710.

As for GBP/USD, buyers need to capture the nearest resistance at 1.3500. Only that will allow them to target 1.3530, above which a breakout would be challenging. The extended target is the area around 1.3560. If the pair falls, bears will try to seize control at 1.3465. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3430 with scope to extend to 1.3400.

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