Euro weakens as Lagarde warns aggressive action could hurt economy

Euro weakens as Lagarde warns aggressive action could hurt economy

LONDON- The euro weakened on Friday and was set for a weekly decline after European Central Bank President Christine Lagarde warned raising rates now could only hurt the economy.

In the meantime, the U.S. dollar index =USD was on track for weekly gains after U.S. inflation surged to a 40-year peak and comments from St. Louis Federal Reserve President James Bullard unleashed a wave of bets on aggressive rate hikes.

Last week, Lagarde sent bond yields and the euro higher by signalling for the first time that an ECB rate hike this year was a possibility, but she has since tried to temper surging expectations of aggressive ECB action.

On Friday, the single currency fell 0.2% versus the dollar to $1.1405, off from a three-month high touched the previous day, after Lagarde said in an interview that raising rates now would not bring down record euro zone inflation but only slow down economic growth.

"Those comments, plus earlier remarks from Bullard seem to be behind the complete reversal of yesterday's EUR/USD rally," said Chris Turner, global head of markets at ING.

Fed's Bullard told Bloomberg he'd like to see 100 basis points of hikes by July.

Also supporting Fed rates bets and the dollar, data showed