Euro Slides on Lagarde Exit Reports as Fed Minutes and Geopolitical Tensions Reshape Global Currency Markets

Global currency markets experienced notable turbulence on Wednesday as three distinct forces converged to reshape investor positioning: reports of an imminent early departure by European Central Bank (ECB) President Christine Lagarde, the release of closely watched Federal Reserve January meeting minutes, and shifting risk sentiment driven by the progress of Iran-U.S. nuclear negotiations in Geneva. The euro fell, the U.S. dollar firmed, and the New Zealand dollar took the steepest hit of the session.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

Lagarde’s Reported Early Exit Rattles the Euro

The euro dipped 0.2% to $1.1836 and fell to 87.2 pence against the British pound after the Financial Times reported that Lagarde is expected to vacate her Frankfurt post before her official mandate expires in October 2027. The motivation, according to sources cited in the report, is political timing: Lagarde wishes to step aside before France’s presidential election in April 2027, ensuring that outgoing French President Emmanuel Macron and German Chancellor Friedrich Merz can jointly steer the selection of her successor — rather than leaving that choice to a potential far-right administration.

The political stakes are considerable. Polls consistently show that Marine Le Pen’s National Rally party — or her deputy Jordan Bardella — is on course to win the French presidential contest. Bardella has previously called on the ECB to buy French government bonds, a move that analysts say would threaten the central bank’s independence and be inflationary and damaging to the euro, according to Jane Foley, head of FX strategy at Rabobank.

The ECB itself sought to cool speculation. A spokesperson told Euronews that “President Lagarde is totally focused on her mission” and has not made any decision about the end of her term. Nevertheless, the report’s details — particularly the political logic behind an early handover — resonated with traders who have been watching the eurozone’s political landscape with mounting anxiety.

Lagarde’s departure, whenever it comes, will open a highly contested succession race. An FT poll from December placed Spain’s former central bank governor Pablo Hernández de Cos and Dutch counterpart Klaas Knot as the leading contenders. ECB Executive Board member Isabel Schnabel has also expressed interest, as has Bundesbank President Joachim Nagel. The ECB president is chosen by a majority vote among eurozone-country leaders, giving France and Germany pivotal roles in shaping the outcome — precisely why the timing of Lagarde’s departure matters so much.

Lagarde has helmed the ECB through extraordinary turbulence since joining from the IMF in November 2019. Under her watch, the institution navigated the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine, and the steepest inflation surge in a generation — euro area inflation reached nearly 11% in late 2022. The ECB responded by raising rates from minus 0.5% to 4% in little more than a year, before subsequently cutting borrowing costs back to 2% as inflation returned towards the 2% target.

Fed Minutes Underscore Rate-Cut Uncertainty; Dollar Firms

Across the Atlantic, the U.S. dollar strengthened in the run-up to the release of the Federal Open Market Committee (FOMC) minutes from its January 27–28 meeting. The minutes confirmed that the Fed held its benchmark rate steady in a range of 3.5% to 3.75%, but revealed a deepening internal divide over what comes next.

According to the minutes, several participants said further rate cuts would be appropriate if inflation continued declining as expected, while others argued the policy rate should remain on hold until there was clear evidence disinflation was firmly back on track. In an unusual signal, some participants even floated the possibility that rate hikes could return if inflation stayed persistently above the 2% target — a two-sided framing that spooked bond markets.

The 10-year Treasury yield climbed more than three basis points to 4.087%, while the 30-year bond yield rose to 4.711% and the 2-year note yield edged up to 3.468%, according to CNBC market data. Yields and prices move in opposite directions, so the broad-based rise in yields reflected diminished expectations for near-term easing.

The fissure within the FOMC is likely to deepen if former Governor Kevin Warsh is confirmed as the next Fed chair — a prospect that adds further uncertainty for dollar traders. Warsh has spoken in favour of lower rates, a position also supported by Governors Stephen Miran and Christopher Waller, both of whom voted against the January decision, preferring another quarter-point cut. Current Chair Jerome Powell’s term ends in May.

Meanwhile, the FOMC minutes also noted, in a passage watched closely by FX strategists, that “the dollar depreciated against most currencies” over the intermeeting period — a trend that, combined with geopolitical developments, led to “some volatility in foreign financial markets” even as risk appetite quickly recovered.

Kiwi Dollar Takes the Sharpest Hit on RBNZ’s Dovish Stance

The New Zealand dollar was the session’s biggest casualty, sinking 0.4% to $0.6016 after the Reserve Bank of New Zealand (RBNZ) held its key rate steady at 2.25% and issued notably cautious forward guidance. In its first meeting chaired by new Governor Anna Breman — who took over in December 2025 — the central bank said monetary policy needs to remain accommodative to support New Zealand’s still-fragile economic recovery.

The dovish signal from Wellington reinforced trader expectations that the RBNZ’s easing cycle, which began in June 2024, is far from over. The 2.25% rate level has been maintained since late 2025, and markets interpreted Breman’s language as leaving the door open to further cuts if GDP data — due in early March — disappoint. The Australian dollar also weakened, slipping 0.1% to $0.7076 in tandem with the kiwi, though the Aussie’s losses were more contained given the absence of fresh policy signals from the Reserve Bank of Australia.

One decision can change your entire career. Take that step with our Online courses in ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed and start building your brighter future today.

Japanese Yen: Steady Amid Competing Currents

The Japanese yen held its ground at 153.23 per dollar, in a session where several forces pulled in opposite directions. On the supportive side, data showed that Japanese exports rose for a fifth consecutive month in January, while the Reuters Tankan survey recorded an improvement in manufacturer confidence for the first time in three months — the kind of data that underpins Bank of Japan (BoJ) arguments for continued monetary normalisation.

The International Monetary Fund also weighed in, urging Japan to keep raising interest rates and avoid loosening fiscal policy further — a call that aligns with market expectations for at least one more BoJ rate hike in 2026. On the geopolitical front, the Trump administration announced three projects worth $36 billion to be financed by Japan, the first tranche of what Tokyo agreed would be $550 billion in investments aimed at reducing U.S. tariffs.

However, concerns about Japan’s fiscal trajectory limited yen gains. A Reuters report cited a finance ministry estimate that Japan’s annual bond issuance would surge 28% three years from now due to rising debt-financing costs, with the government needing to issue up to 38 trillion yen ($248.3 billion) in bonds in fiscal 2029 — up from 29.6 trillion yen in fiscal 2026. This gloomy fiscal arithmetic kept a lid on yen appreciation even as underlying macro momentum pointed higher.

Geopolitical Risk: Iran-U.S. Talks and the Ukraine Dimension

Beyond central bank drama, geopolitical risk continued to set the backdrop for Wednesday’s currency moves. In Geneva, the U.S. and Iran concluded a second round of nuclear talks, with Tehran’s Foreign Minister Abbas Araghchi declaring that both sides had reached agreement on “guiding principles” as a foundation for drafting a potential deal.

“I believe we made good progress,” Araghchi told state media. “The path toward an agreement has started but we will not reach it quickly.” The optimism, however, was shadowed by Iranian Revolutionary Guard military drills in the Strait of Hormuz — a reminder of how quickly the diplomatic environment could deteriorate. The strait carries roughly a fifth of the world’s oil flows, and its temporary partial closure briefly pushed Brent crude higher before prices retreated as talks concluded.

According to ANZ analysts, “prospects of easing geopolitical tension with positive outcomes from the Iran-U.S. talks in Geneva weighed on haven demand for gold” with bullion dipping 0.2% to around $4,867 per ounce as a result. Silver fell by a similar margin.

Separately, currency strategists kept one eye on peace negotiations between Russia and Ukraine, which continued to be mediated by the United States. Progress or the lack thereof — in those talks has historically proved a meaningful driver of both the euro and risk-sensitive currencies. For now, markets appeared to be pricing a cautious optimism, reflected in the modest recovery of European equity indices even as the euro itself remained under pressure from the Lagarde succession story.

Market Outlook: Uncertainty Remains the Dominant Theme

Taken together, Wednesday’s session illustrated how tightly interconnected the world’s currency markets have become in 2026. A single report about a central bank president’s succession plans in Frankfurt can ripple through eurozone yields, alter ECB rate-path expectations, and shift positioning in EUR/USD within hours. Meanwhile, the Federal Reserve’s internal divisions over the path of U.S. rates — and the looming question of who will chair the institution from May onwards — add a persistent layer of dollar uncertainty that keeps traders on edge.

For the euro specifically, analysts noted that the short-term volatility triggered by the Lagarde story could prove relatively contained if the ECB’s broader policy credibility remains intact. Rabobank’s Foley argued that an early exit, paradoxically, could be protective for the euro over the medium term, by removing the risk of far-right political influence over the ECB’s leadership. That argument has some merit — but in the immediate term, uncertainty over the succession timeline and the candidate pool is likely to keep EUR/USD range-bound.

The kiwi dollar’s vulnerability looks more structural. New Zealand’s economic recovery remains uneven, the RBNZ has signalled its intention to keep policy loose, and the currency faces headwinds from both a potentially stronger U.S. dollar and weaker-than-expected Chinese demand — a critical variable given the trade ties between Wellington and Beijing.

Looking ahead, market participants will be watching for signals from the next FOMC meeting on March 17–18, the first round of post-succession ECB commentary, and fresh developments from Geneva. In an environment where central bank leadership transitions, geopolitical negotiations, and diverging economic data are all in play simultaneously, the one certainty for currency traders is that the uncertainty premium is here to stay.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

19th February, 2026