ECB's Lagarde: Most measures of longer term inflation stand around 2%
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 source, 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.
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 source, 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
...
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 coming under pressure Economy was showing momentum before current turbulence The headlines from Lagarde's press conference confirm what the statement hinted at — the ECB is sitting on its hands but the risk balance has shifted under its feet. Rates held at 2.15% on the main refi, 2.00% on the deposit, exactly as priced. The euro initially sold off on the no-pre-commitment language, but Lagarde's tone is doing some lifting on the other side.
The "favourable starting point provides some cushioning" framing is important. Lagarde is telling markets that the euro area entered this shock with inflation near target and a resilient economy, so the ECB has runway before it has to react. That's a way of buying time without committing to anything. "Households in solid financial position" and "labour demand has cooled further" are running in opposite directions narratively — balance sheets are fine, but the labour market is loosening.
The wage tracker pointing to easing labour costs is the disinflationary anchor she keeps coming back to, and it's the single biggest reason the ECB can credibly stay on hold rather than getting forced into a hike. Fiscal guidance — "responses should be temporary, targeted, tailored" — is the standard ECB plea to governments not to muddy the disinflation path with broad energy subsidies. Worth noting because if European governments do go big on fiscal support to cushion the energy hit, that changes the inflation math and the ECB knows it.
The euro kneejerk was lower on the statement as there was some thinking they would highlight a June hike more explicitly. Pricing on that hike is at 76%. Naturally, the ECB wants to see what happens in the next six weeks before committing.
Hopefully the war ends soon and it's notable that pricing is positive today. From the Q&A: Did debate hiking at length Decision was unanimous to hold Made an informed decision based on insufficient info Those hawkish lines led to some small bids in the euro. Suggests that six weeks will be enough time to assess and make an informed choice This article was written by Adam Button at investinglive.com.
Sources & References
How we cover this story