ECB Ups The Ante

The ECB’s message on inflation took a more aggressive turn yesterday, flagging clear hawkish risks into the July ECB meeting in coming weeks. Speaking during the ECB’s Sintra Forum (which continues today), Lagarde noted that, in the eurozone, “Inflation pressures are broadening and intensifying,” going on to say that CPI is “undesirably high and it is projected to stay that way for some time to come.”

Lagarde Turns More Hawkish

With this in mind, Lagarde said that the ECB would act in “a determined and sustained manner” to bring inflation down. Notably, Lagarde outlined that the bank might look to take more aggressive measure if necessary. Previously, the bank outlined plans to rely on gradualism in its approach to raising rates. However, in comments yesterday, Lagarde explained that there were “clearly conditions in which gradualism would not be appropriate.” Specifically, the ECB chief pointed to the path of inflation noting and the current risks stemming from the Ukraine-Russia conflict and its impact on resource availability. Here, Lagarde noted that if inflation saw a fresh escalation then the bank would need to “withdraw accommodation more promptly to stamp out the risk of a self-fulfilling spiral”.

July Rate Hike in Focus

Lagarde’s comments appear to reflect the growing hawkishness within the ECB heading up to the July hike. At the last meeting the ECB outlined plans to raise rates by .25% initially, followed by a larger .5% hike in September. However, with the macro backdrop deteriorating, global rates rising and inflation remaining elevated, the case for a larger hike in July is growing.

Along with Lagarde’s comments at Sintra yesterday, we also heard ECB member Martin Kazaks telling Bloomberg that “If we see that the situation has worsened, that inflation is high and we see negative news in terms of inflation expectations, then in my view front-loading the increase would be a reasonable choice.”

Growth Concerns Rising

As with other central banks, however, the ECB is caught in a very difficult place of needing to raise rates to battle inflation whilst also trying to minimize the damage to the economy. Earlier this month, the ECB called an emergency meeting to address fragmentation with the eurozone economy. There are fears that a larger rate hike will amplify this fragmentation, putting further stress on the eurozone economy.

Technical Views


The pair is currently sitting on support at the 1.0364 level, forming a range between that area and resistance at 1.0775. With the pair in a long-term downtrend and momentum indicators looking lack lustre, focus is on a downside break towards 1.0214 next. However, if the current formation proves to be a double bottom, bulls can look for a topside break of 1.0775 towards 1.0951.