Despite all the rhetoric about its desire to fight inflation, the ECB is certainly not hinting at much conviction. The key word yesterday was flexibility, as the ECB wants to be able to benefit from policy options and not be forced into a rate hike as soon as possible.
Lagarde’s press conference made this clear when it said the rate hikes could come anytime between a week and a few months after the end of APP purchases, which is still expected to be in the third quarter. .
It’s not like we weren’t warned. *cough*
The lack of conviction certainly leaves little room for a potential move in July, although ECB sources have signaled that it could still be on the table. But given the tight lead time, that might be unlikely unless inflation threatens to soar much higher. And even then, we can still see decision makers sitting on their hands.
As for the euro, it’s hard to find much optimism at the moment. With a central bank showing little willingness to be aggressive and a rather bleak economic outlook with geopolitical tensions still casting a big shadow over the region, it’s hard to be positive.
EUR/USD is retesting the 1.0800 level and if that breaks we could be on track to test the 2020 low at 1.0635 next.