The ECB delivered the widely anticipated 25bp rate cut today, with President Lagarde sticking to her guns on a meeting-by-meeting approach. Despite the ECB’s “no preset path” mantra, markets are already betting on another cut in December and a 22% chance they lower rates by 50 bps.
Westpac highlights how Lagarde adopts the stance of answering questions with a
message that she and the ECB wish to convey rather than actually respond
directly to the questions.
However she was pointedly asked if they considered at 50bps cut and she emphasized the 25bp cut was the only option discussed – “end of story,” she said. The ECB sees the disinflationary process as on track but remains wary of elevated labor costs.
“During Lagarde’s Press Conference, markets became more
confident in pushing yields lower with EUR remaining heavy,” Westpac writes.
“The ECB remains determined to ensure that inflation
returns to their 2% target on a medium-term basis, keeping policy restrictive
in order to so, in relation to their meeting-by-meeting data dependency whilst
also avoiding any commitment to a pre-set path, another aspect repeatedly
stressed by Lagarde.”
The euro is down 35 pips today to 1.0836 and touched at two-month low today at 1.0812.