ECB's Lagarde: Most measures of longer term inflation stand around 2%
At a Glance
The ECB's current stance reflects a cautious approach amid mixed inflation signals, with President Lagarde emphasizing that the eurozone's inflation metrics remain around the target of 2%. Per the full note , while short-term inflation expectations are rising, easing labor costs suggest that the ECB has room to maintain rates without immediate hikes. This nuanced positioning is critical as the market anticipates potential shifts in policy, particularly with a June hike currently priced at 76%. The desk believes that the ECB's wait-and-see approach will be pivotal in shaping the euro's trajectory in the coming weeks.
Full Analysis
What the desk is arguing
The ECB's decision to hold rates at 2.15% reflects a careful balancing act in response to evolving inflation dynamics. Per the full note , Lagarde's comments indicate that the central bank is not in a rush to adjust rates, citing a favorable starting point for the eurozone economy.
The wage tracker showing easing labor costs serves as a key disinflationary anchor, allowing the ECB to remain on hold rather than feeling pressured into a hike. This is underscored by the fact that while short-term inflation expectations have increased, underlying inflation indicators have remained stable in recent months.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns closely with jpmorgan, which is positioned at the upper end of the range, while bofa presents a more cautious outlook at the lower end. The desk's call reflects a moderate bullish sentiment on the euro, anticipating stability in the near term.
How other firms see it
Firms like citi and jpmorgan share a similar outlook, emphasizing the importance of labor cost dynamics in their assessments of the ECB's policy path. Conversely, bofa takes a more bearish stance, reflecting concerns over potential fiscal responses to energy costs that could complicate the inflation landscape.
The EUR/USD trajectory is closely tied to the ECB's rate decisions, while the broader implications of energy prices and fiscal policy will also influence market sentiment. Additionally, keep an eye on the upcoming inflation data releases, which could provide further clarity on the ECB's next steps.
What the calendar says
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From the original
Wage tracker indicates easing labor costs Surveys indicate a rise in other costs Indicators of underlying inflation have changed little in recent months Short-term inflation expectations have moved up High energy costs make firms and households reluctant to invest Supply chains c
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