Listening to ECB President Christine Lagarde, one gets the impression that a further ECB interest rate increase as early as October is highly unlikely. Of course, Lagarde is not ruling anything out. And why should she? She has nothing to gain by limiting her options. Observers who still regret the lack of forward guidance have not understood what is different today from the times when interest rates were stuck at the lower bound, notes Ulrich Leuchtmann, Head of FX and Commodities Research at Commerzbank.
Considerable gap between the current EUR/USD level and 1.14
“Yesterday’s communication sounded very much like a pause in October. The ECB’s projection for HICP inflation was not changed; the market panic over falling inflation expectations is not shared by the monetary authorities in Europe. On the contrary, the forecast for core inflation in 2024 and 2025, which is particularly relevant for the inflation outlook, was even revised slightly upwards. The ECB could not have done more to refute the recent changes in market expectations.”
“Those who believe in a moderate deflation rather than the inflation collapse that the market is currently assuming will have to conclude that the ECB’s interest rate cuts will not be as rapid or as pronounced as the market currently assumes. From this perspective, the fact that ECB expectations have not changed significantly yesterday simply shows that there is still a need for adjustment. This applies as much to inflation and ECB expectations as to EUR exchange rates.”
“Whether the majority of the market or those who do not believe in a dramatic disinflation will be right will become clearer in the coming months when more inflation data is released. As our economists tend to agree with the ECB’s view on inflation, I feel vindicated in our bullish view on EUR/USD from a EUR perspective and am quite pleased that the market did not immediately follow our view. Despite the USD weakness, there is still a considerable gap between the current EUR/USD level and our 1.14 target.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
