Euro weakens further after Lagarde comments

Press conference of ECB President Christine Lagarde started at 1:45 pm BST. 

Key takeaways:

• The ECB intends to raise rates by 50 bp at its meeting in March

• Next hikes dependent on macro situation (slightly dovish tone)

• GDP growth will remain weak, economic activity is declining

• high inflation and tighter financing conditions led to a decline in production and personal spending

• fiscal policy may intensify inflationary pressure, this requires a stronger reaction of the ECB

• An increase in wages will strengthen the purchasing power of consumers

• inflation risks are now more balanced

• unemployment rate may increase

• the economy is stronger than expected

• the economic situation should improve in the coming months

• The pace of job creation may slow down

• Energy prices are lower than expected in December, which causes a decline in inflation

• All scenarios assume further interest rate hikes

• Most ECB members support a 50 bp hike in March (however, this is not a final decision, a bit dovish insertion)

• current inflationary pressure, fiscal policy and wage growth justify a 50bps hike in March

• Lagarde does not expect emergence of factors that would justify abandoning the 50 bp hike (return to a more hawkish stance)

• We are not yet dealing with the process of disinflation

• Rates will not reach peak in March (hawkish)

The EURUSD pair moved lower during the conference. Lagarde comments and the ECB decision itself is not perceived either as very dovish or hawkish. The market is increasingly aware of the approaching pivot of central banks.

EURUSD deepened decline during Lagarde conference. The main currency pair is currently testing a short-term support zone in the 1.0930 area. Source: xStation5