The ECB cut rates by 25 basis points and the Lagarde press conference is over. A summary by topic of the comments from Lagarde (and ECB) :
Growth & Economic Outlook
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The Euro area economy is resilient, but the growth outlook is deteriorating.
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Outlook remains clouded by uncertainty, with consumers likely to hold back on spending.
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Trade disruptions and geopolitical risks are weighing on investment.
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Growth in Q1 is likely positive; defense spending seen boosting manufacturing.
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Risks to growth are tilted to the downside, especially from dampened exports and financing conditions.
Inflation & Monetary Policy
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Most indicators point to underlying inflation trending toward 2%.
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Wages are moderating, and domestic inflation is easing.
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Long-term inflation expectations are anchored around 2%, aiding credibility.
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Strong EUR may reduce inflation; higher import costs could lift it.
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ECB removed “restrictiveness” from its language; in today’s volatile world, it’s no longer meaningful.
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ECB will define the appropriate policy stance using data, readiness, and agility.
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Policy will be meeting-by-meeting, using whatever tools are needed.
Policy Stance & Communication
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Today’s 25 bps cut was unanimous, though some governors had leaned toward a pause weeks ago.
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ECB will undertake intense scenario analysis in coming weeks.
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ECB does not target FX rates, but considers FX in its decisions.
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The neutral rate is only applicable in a “shock-free” world, which we’re clearly not in.
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ECB remains flexible and pragmatic, guided by “safe, reliable” data.
Trade, Tariffs & FX
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Tariffs are a negative demand shock; they will weigh on growth, and inflation effects may grow over time.
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ECB is sticking to forecasts despite tariff risks.
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No change in customer behavior due to U.S. tariffs observed yet.
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On U.S. trade tensions, the EU’s most obvious response is a zero-for-zero tariff deal.
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Expect re-routing of goods as tariffs disrupt traditional supply chains.
Stimulus & Additional Measures
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Policymakers did not discuss stimulus at the meeting.
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ECB will act if needed, but currently believes the adjusted policy path is appropriate.
Uncertainty & External Risks
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Geopolitical risks, particularly around trade, are major sources of uncertainty.
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Heightened uncertainty makes it harder to judge inflation and growth dynamics.
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Lagarde admitted she cannot say if we are at the peak of uncertainty.
Technically, the EURUSD tried to move lower on the cut but after breaking below the 100 hour MA at 1.13495, the low could only reach 1.1337 before rebounding. The current price is at 1.1360. The trading range for the day is 74 pips. The average over the last month is 131 pips.
The sellers had their shot. They missed. It would take a move below the 100 hour MA and stay below. The strength in the EURUSD comes despite a Fed that is happy to wait and see, while the ECB is happy to cut.
Of course, Pres Trump is now railing on the Fed chair and can’t wait to replace him
