Lagarde’s comments at the press conference clearly point to September rate hike
The ECB appears increasingly poised for a September rate hike, supported by President Lagarde's recent comments highlighting rising inflation concerns. Per the full note source, the ECB's policy direction has shifted towards a more hawkish stance, citing heightened upside inflation risks as oil prices surge. This overall tilt indicates potential volatility in EUR pairs, particularly against the USD as traders adjust their expectations for tightening monetary policy in the Eurozone.
What the desk is arguing
The recent press conference with ECB President Christine Lagarde suggests that a September rate hike is becoming a near certainty. Lagarde indicated a clear tilt towards a more aggressive approach to address increasing inflation concerns, particularly with oil prices climbing towards $100 per barrel. This is a notable shift from just a few weeks prior when such a move seemed unlikely.
A significant aspect of Lagarde's remarks was the indication that some members had favored a rate hike during the last meeting, highlighting a growing divide regarding the pace of policy normalization. The desk emphasizes these comments as a signal that the ECB is likely to focus more on inflation management, which can further bolster the euro's value against majors.
Where it sits in our coverage
The current consensus target for the EUR/USD pair is set at 1.075, with a range between 1.04 and 1.12. Notable individual targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This stance aligns at the upper bound of the current expectations, suggesting that the desk's outlook is in sync with a more optimistic perspective on the euro's strength against the dollar as rate hikes come into play.
How other firms see it
Firms such as jpmorgan and deutsche are aligned with the bullish outlook on the euro as it responds to potential ECB rate hikes. Conversely, firms like bofa are positioning for a more cautious approach, reflecting concerns over economic stability amidst tightening policy.
Given the shifting market dynamics, watch EUR/USD closely as the narrative surrounding ECB actions evolves, particularly in relation to US monetary policy shifts, which may be affected by corresponding inflation readings and labor market developments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Lagarde signals strong possibility of a September rate hike due to rising inflation concerns.
- 02Current oil prices complicate ECB's hesitation in tightening policy.
- 03Consensus targets suggest bullish sentiment for the euro against the dollar.
- 04Diverging views among institutions indicate varying risk assessments for euro strength.
Market implications
Traders should monitor the EUR/USD trajectory closely, particularly around levels of 1.075, which reflects the consensus target. Positioning should be adjusted as new data points emerge from the ECB regarding inflation metrics leading up to the September decision.
Risks to this view
If inflation data unexpectedly cool or energy prices decline, the ECB's stated need for tighter policy may lose momentum. Any substantial indications of economic downturn could shift the ECB's focus back towards supporting growth rather than hiking rates, potentially causing the euro to weaken significantly.
Articles Lagarde’s comments at the press conference clearly point to September rate hike Published 14:39 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Our take-away from the press conference: the European Central Bank has again turned more hawkish, suggesting that a September rate hike is almost a done deal Carsten Brzeski At today's press conference, ECB President Lagarde went as far as possible without pre-committing to a rate hike in September ECB president Christine Lagarde’s comments at the press conference were a good illustration of how close a central bank can get to pre-committing without actually pre-committing. It’s obvious that the recent roller-coaster ride of energy prices has made the ECB both more hawkish but also cautious. Where there seemed to be very little need for an additional rate hike three weeks ago, with oil prices below $70/bbl, current oil prices of close to $100/bbl will make it hard for the ECB not to hike in September.
Most important comments at press conference There were two important comments by Christine Lagarde this afternoon, signalling future policy moves. The first was the reference that upside and downside risks to the inflation and growth outlook were no longer "more balanced". Instead, Lagarde stressed the upside risks to inflation and the downside risks to growth.
A clear hawkish shift. The second was the remark that some ECB members had favoured a rate hike already at today’s meeting, even though the decision to keep rates on hold was taken unanimously. On the other hand, and a bit more dovish, Lagarde remarked that there were no second-round effects from higher headline inflation, yet.
The well-known comments about how many data points will be released until the next meeting no longer brings us sleepless nights. In fact, there will always be new data points. This is simply part of conducting monetary policy.
What this remark probably means is that there was not a sufficient majority today in favour of hiking rates, but unless there are really no additional inflationary signs over the next two months, a September rate hike is almost a done deal. More for the feuilleton section, Lagarde was also asked about her professional future. A discussion she herself had fuelled again recently by suggesting that she might enter the French presidential election race, passively or actively.
Lagarde’s response that she didn’t want to be boxed into anything, however, did not fully meet expectations. In any case, we remain convinced that even if Lagarde was to leave the ECB before her term in office officially expires in October 2027, the impact on the ECB’s monetary policy should be very limited. In fact, Lagarde is not perceived by markets as the ECB’s thought leader, determining policy decisions on her own, but rather the moderator, steering the discussion and policy decisions.
The question is what could stop the ECB from hiking in September, not what it needs to hike Looking ahead, the latest increase in energy prices has actually pushed the ECB closer to its more severe macro scenarios, calling for another rate hike – at least when following the ECB’s own logic and reaction function, presented at the June meeting. Unless oil prices start dropping significantly over the next weeks, the ECB’s own macro projections in September will call for another rate hike, loud and clear. Consequently, we are back in a situation in which the question is what could stop the ECB from hiking in September, rather than what would move the ECB to hike.
Monetary Policy Inflation GDP Eurozone ECB Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Carsten Brzeski Global Head of Macro Carsten Brzeski is the Global Head of Macro for ING Research.
Previously, he worked at ABN Amro, the Dutch Ministry of Finance and the European Commission. He is a 2019 JFK Memorial Policy Fellow… In this article Most important comments at press conference The question is what could stop the ECB from hiking in September, not what it needs to hike
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