The ECB press conference with Christine Lagarde is underway. So far we have not learned anything that could change the current face of monetary policy in EMU. Key points:
- The economy is doing well, but growth is depressed
- Inflation is rising longer and remains high, despite previous expectations
- Multiple sources of core inflation add to growth
- High inflation creates uncertainty in markets
- Inflation at 5.1% y/y in January and will remain high in the near term
- Threat of reduced household spending
- Supply-side problems will pass but still affect the economy
The start of the conference saw a clear strengthening of the EUR, although overall it is difficult to talk about any signal. The ECB is not comfortable with inflation, but at the same time the bank is sticking to its previous statements about the passing of price dynamics in the longer term.
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- Inflation is a worry for most members
- Discussion on inflation, but no latest projections
- ECB does not want to come out ahead with decisions, wants to have a basis for potential moves
- ECB will depend on data, need for discussion, need for analysis for inflation in the medium term (question about increases)
- ECB will consider forecasts, will discuss (evading answer as to whether ECB is considering hikes)
- There are concerns that the ECB should act
- In March and July the bank will consider whether inflation, labour market targets have been met
- The ECB has many options in relation to its tools to ensure inflation reaches 2% in the medium term
Overall, we can see some hawkish attempts from Lagarde, but they are very vague. Nevertheless, the market reads these words as hawkish and EURUSD bounces around the 1.1350 level.
The market seems to have mainly noticed that there is no absolute negation of inflation and mentioning that rate hikes are out of the question. Lagarde admitted that the situation has changed and at this point she cannot confirm her words that hikes are unlikely. Lagarde needs new data and forecasts to confirm or deny.
EURUSD is clearly rebounding during the ECB conference. Source: xStation 5
