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Hawkish Reaction As Lagarde Clarifies Normalisation Path Ahead

ECB

The Bund drops sharply and Euro tests May's highs vs the USD on a blog post by ECB Pres Lagarde whose "purpose" as she writes is to "clarify the path of policy normalisation that lies ahead of us":

  • She explicitly guides to APP ending "very early" in Q3, with a July rate hike and exiting negative rates by the end of Q3 ("based on the current outlook").
  • Beyond that, "policy normalisation has to be carefully calibrated to the conditions we face":
  • "If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. But the speed of policy adjustment, and its end point, will depend on how the shocks develop and how the medium-term inflation outlook evolves as we move forward."
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The Bund drops sharply and Euro tests May's highs vs the USD on a blog post by ECB Pres Lagarde whose "purpose" as she writes is to "clarify the path of policy normalisation that lies ahead of us":

  • She explicitly guides to APP ending "very early" in Q3, with a July rate hike and exiting negative rates by the end of Q3 ("based on the current outlook").
  • Beyond that, "policy normalisation has to be carefully calibrated to the conditions we face":
  • "If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. But the speed of policy adjustment, and its end point, will depend on how the shocks develop and how the medium-term inflation outlook evolves as we move forward."