The European Central Bank (ECB) has decided to keep all of its key interest rates unchanged (deposit rate: 2%; refinancing rate: 2.15%), citing easing price pressures and the resilience observed so far in the Euro Area economy. The decicion was in line with markets' expecations. ECB president Chrisitan Lagarde is about to take the stage in Frankfrut to explain the decision and provide the updated economic outlook. You will find key insights from the conference blow.
Key statements from President Lagarde:
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Inflation is currently in 2% medium-term target and the economic developments are in line with ECB's previous assesment. Price dynamics for goods conitnue to moderate, while services inflation accelerated slightly, to 3.3%. Short-term consumer inflation expectations lowered after previous uptick.
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Growth in Q2 exceeded expectations, largely due to strong pre-tariff exports, alongside increased private consumption and investment. Both manufacturing and services saw modest expansion, though risks remain, including ongoing geopolitical and trade uncertainty, as well as a stronger euro, which may be causing firms to hesitate on investment decisions.
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Risks to growth remain tilted to the downside, with trade barriers potentially weighing on economic activity. Inflation outlook, on the other hand, got more uncertain. Stronger euro could damp inflation more, while supply chain fragmentation due to trade barriers could increase input prices.
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ECB monitors euro exchange rates for forecasting purposes, but does not target it with its policy in any way.
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Staff projections point to the inflation undershooting (below the target) in 2026, though medium-term target remains in place.
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"We are in a good place to hold and watch how risks develop in the next few months".
In conclusion, Chrisitne Lagarde has numerously underlined that ECB's positioning is well-suited for the current growth and inflation dynamics, given the elevated levels of uncertainty. The undertone is slightly more on a hawkish side, given the amount of speculations that ECB could be pushed towards further cuts amid tariff-induced growth risks. Market is currently pricing no full cut untill June 2026.
EURUSD gained roughly 0.1% between the decision release and the end of Lagarde's conference. Source: xStation5
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