EURO: Lagarde: ECB Interest Rates May Hold Longer
The ECB President Lagarde said there is not steady declining of rate cuts in the upcoming meetings, there will be hold for longer time is possible, due to wage growth and inflation is increasing. I am keen to see the Corporate Profits and Labour costs how much ratio is improving or declining, Time dependent rate cuts in not helpful for ECB Goals at current scenario. The Euro Currency moved up after the hawkish speech from ECB President Lagarde.
EURUSD has broken Ascending channel in downside
European Central Bank (ECB) President Christine Lagarde emphasized that interest rates are not guaranteed to follow a consistent path of declines. She cautioned markets that expecting rate cuts to occur within specific time frames does not align with the ECB’s objectives.
Key Highlights
Interest Rate Trajectory: Interest rates are not necessarily on a linear-declining path. There may be periods when the ECB decides to maintain current rates instead of reducing them.
Rate Holds: It is possible that the ECB will hold interest rates steady for a duration longer than a single meeting, indicating flexibility in their approach.
Guidance on Rates: Providing time-dependent guidance on interest rates is not beneficial. Lagarde suggested that such expectations might not be helpful to the ECB’s goals.
Focus Areas: Lagarde expressed a keen interest in monitoring the evolution of labor costs and corporate profits, implying these factors will significantly influence future policy decisions.
EURO: Lagarde: ECB May Delay Rate Cuts for Several Meetings
ECB President Christine Lagarde stated that there will not be a steady decline in interest rates in the upcoming meetings. Instead, it is possible that rates will be held for a longer period due to increasing wage growth and inflation. Lagarde expressed a keen interest in monitoring the ratio of corporate profits to labor costs to see how they are improving or declining. She also mentioned that time-dependent rate cuts are not helpful for the ECB’s goals in the current scenario. Following Lagarde’s hawkish speech, the Euro currency moved up.
EURCHF is moving in Ascending channel and market has reached higher low area of the channel
European Central Bank (ECB) President Christine Lagarde stated in a newspaper interview that interest rates are not on a straightforward downward trajectory, and policymakers might sometimes wait more than one meeting before reducing them again. Last week, the ECB cut rates from a record high but did not commit to further policy easing due to persistently high wage growth and another increase in inflation projections.
Key Points from the Interview
Interest Rate Path: Lagarde emphasized that the recent rate cut does not signify a continuous, linear decline in interest rates. There may be periods when the ECB decides to maintain the current rates.
Potential Rate Holds: Lagarde acknowledged the possibility that the ECB could hold interest rates steady for longer than a single meeting.
Market Expectations: Markets are now anticipating little more than one rate cut over the remaining four meetings this year and expect between three and four cuts through the end of 2025, spanning the next 12 policy meetings.
Future Cuts Depend on Data: While Lagarde did not confirm that the ECB would maintain current rates in July, she indicated that further cuts would depend on various wage and corporate profit indicators available before the bank’s September meeting. These include data on wages, unit profits, and productivity.
Board Members’ Views: ECB board member Isabel Schnabel and Slovak policymaker Peter Kazimir have both stated that the ECB should not cut rates again next month, with many others privately agreeing.
Forward Guidance: Lagarde argued against explicit forward guidance due to the uncertainty and potential fluctuations in inflation. She stated that time-dependent guidance is currently not helpful.
Additional Remarks
Labour Costs and Corporate Profits: Lagarde is keen to observe the evolution of labor costs and corporate profits, indicating these factors will play a crucial role in the ECB’s future decisions.
EURO: Lagarde: ECB Cut Not a Signal of Continuous Rate Declines
European Central Bank (ECB) President Christine Lagarde articulated that a consistent downward trajectory of interest rate reductions is not anticipated in forthcoming meetings. She suggested that it is plausible for interest rates to be maintained for extended durations, attributable to the upward pressures on wage growth and inflation. Lagarde expressed a particular interest in scrutinizing the evolving ratios of corporate profits to labor costs to assess their relative improvements or declines. Furthermore, she asserted that time-bound guidance on rate cuts is counterproductive to the ECB’s objectives under the current circumstances. Subsequent to Lagarde’s assertive discourse, the Euro experienced an appreciation.
EURCAD is moving in Ascending channel and market has reached higher low area of the channel
European Central Bank (ECB) President Christine Lagarde emphasized that caution is essential and last week’s cut in borrowing costs does not necessarily signal a series of rapid future reductions.
Key Highlights
Cautious Approach: Lagarde underscored that the ECB must remain cautious and that interest rates are not on a predetermined declining path. She stated, “We’ve made the appropriate decision, but it doesn’t mean interest rates are on a linear declining path. There might be periods where we hold rates again.”
Reassessment at Every Step: Lagarde reiterated that borrowing costs in the Euro-zone are not on a set trajectory and will be reassessed continually, especially when new projections are made. This reassessment approach was highlighted in a pre-release by Handelsblatt and also published in Expansion, Il Sole 24 Ore, and Les Echos.
Recent Rate Cut Context: The ECB’s recent rate cut came despite higher inflation projections and unexpectedly strong wage growth and consumer prices. Investors are left questioning the future direction of policy.
Current Economic Indicators: Inflation in the Euro-zone accelerated to 2.6% in May, with a notable increase in services prices and underlying pressures. Wage growth in the first quarter was significantly higher than expected. Lagarde mentioned that while some recent numbers “could have been better,” the ECB felt that disinflation was sufficiently advanced to justify a rate cut.
Divergent Views: Austria’s Robert Holzmann opposed last week’s rate cut, and other officials have urged caution, tempering expectations of rapid subsequent cuts. Ireland’s Gabriel Makhlouf noted the uncertainty about the pace of future rate adjustments.
Bundesbank President’s View: Joachim Nagel, President of the Bundesbank, suggested that the ECB might not lower borrowing costs again soon, emphasizing the need to observe how quickly price growth declines to target.
Ongoing Economic Monitoring: Lagarde highlighted the importance of monitoring wages, unit profits, and productivity as key drivers of services inflation. She also noted that the growth outlook has improved and that the economy is expected to strengthen.
Policy Statement Clarification: Lagarde explained that the ECB’s policy statement did not mention reducing the current level of monetary-policy restriction due to a desire to remain data-dependent. She emphasized that forward guidance is not helpful given the high uncertainty.
Natural Interest Rate: Lagarde indicated that the natural interest rate is likely higher than before the pandemic, but it is currently too early to discuss this further.
These points illustrate the ECB’s current stance on monetary policy, emphasizing caution and data dependency in the face of economic uncertainties.
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