ECB Press Conference: President Lagarde speaks on policy outlook after 25 bps hike

Christine Lagarde, President of the European Central Bank (ECB), explains the decision to raise key rates by 25 basis points in July and responds to questions from the press.

ECB press conference key quotes

"The near-term outlook has deteriorated."

"Manufacturing held down by weak external demand."

"Services is more resilient but momentum slowing."

"The labour market remains robust."

"Domestic price pressures are becoming important drivers of inflation."

"Some long-term inflation indicators remain elevated; they need to be monitored closely."

"Economic and inflation outlook remain highly uncertain."

"Food and energy prices are potential upside risks to inflation."

"Starting to see transmission of policy to economy."

"Wage increases are definitely playing a role in driving inflation."

"The key instrument in the current circumstance is the interest rate."

"There is a possibility of a hike or a pause, it's a maybe."

"Do we have more ground to cover? At this point I wouldn't say so."

"Not seeing signs of strengthening second round effects."

"We have not discussed a balance sheet cut."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

This section below was published at 12:15 GMT to cover the European Central Bank's policy announcements and the initial market reaction.

The European Central Bank announced that it raised key rates by 25 basis points (bps) following the July policy meeting, as widely expected. With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.25%, 4.5% and 3.75%, respectively.

Follow our live coverage of the market reaction to ECB policy decisions.

In its policy statement, the ECB reiterated that future decisions will ensure that rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to 2% medium-term target.

Key takeaways from the policy statement

"In particular, interest rate decisions will continue to be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission."

"ECB also decided to set remuneration of minimum reserves at 0%."

"This decision will preserve effectiveness of monetary policy by maintaining current degree of control over monetary policy stance and ensuring full pass-through of interest rate decisions to money markets."

"At the same time, it will improve efficiency of monetary policy by reducing overall amount of interest that needs to be paid on reserves in order to implement appropriate stance."

"ECB intends to reinvest principal payments from maturing securities purchased under programme until at least end of 2024."

Market reaction

The Euro came under modest selling pressure with the initial reaction to the ECB's policy announcements. As of writing, the EUR/USD pair was trading near 1.1100, where it was still up 0.25% on a daily basis.

This section below was published at 07:00 GMT as a preview of the European Central Bank (ECB) policy announcements.

  • European Central Bank is set to deliver another 25 bps rate hike on Thursday.
  • Lagarde could fan expectations of a September rate hike pause.
  • The ECB decision and Lagarde’s presser likely to ramp up volatility around the Euro.

European Central Bank (ECB) is expected to keep up the rate hike path when it meets on July 27, Thursday, to decide on its monetary policy. EUR/USD is flirting with 1.1100 after reaching its highest level in 17 months above 1.1200 last week, as we progress toward the ECB policy announcements.

There are no updated staff projections due for publication following the July meeting but ECB President Christine Lagarde will address the usual post-meeting news conference at 12:45 GMT.

European Central Bank interest rate decision: What to know in markets on Thursday, July 27

  • EUR/USD is holding gains above 1.1100, as the US Dollar (USD) nurses losses induced by the US Federal Reserve’s (Fed) dovish rate outlook. 
  • The Fed raised rates by the widely expected 25 basis points (bps) to a 22-year high of 5.25%-5.50% and left doors open for more tightening without committing to the timing of the next lift-off. 
  • Powell refrained from providing any forward guidance, emphasizing a ‘data-dependent’ and ‘meeting-by-meeting’ approach.
  • US S&P 500 futures capitalize on risk flows while the benchmark 10-year US Treasury bond yield holds lower ground near 3.85%.
  • On Tuesday, Germany’s IFO Business Climate Index declined to 87.3 in July versus last month's 88.6 and the consensus forecast of 88.0. the Institute’s Economist Klaus Wohlrabe said that the “German GDP likely to shrink in the 3rd quarter.”
  • US Conference Board's Consumer Confidence Index rose to 117.0 from 110.1 (revised from 109.7) in June. The gauge showed the continued improvement in the US consumer sentiment in July.
  • The ECB event will likely provide short-term direction in the EUR/USD pair while the markets will seek fresh trading incentives from the US advance Q2 GDP and Jobless Claims data.

ECB interest rates expectations and implications for EUR/USD

European Central Bank is likely to increase interest rates by 25 basis points (bps) on Thursday at 12:15 GMT, raising the Deposit Rate from 3.50% to 3.75%. Such a rate hike is fully baked in, with probability standing at roughly 97%. The central bank delivered a 25 bps rate hike in June, slowing down its pace of increase amid mounting recession fears.

Early July, President Lagarde said in an interview with La Provence, “we still have work to do to bring inflation back down to our target.” “We need to bring rates into “sufficiently restrictive” territory to lock in our policy tightening, she mentioned in her introductory speech at the ECB Forum on Central Banking, in Sintra, last month.

Meanwhile, at the July post-meeting press conference, Lagarde argued, "Are we done? Have we finished the journey? No. We're not at our destination. Do we still have ground to cover? Yes, we still have ground to cover.”

Lagarde stuck to her hawkish rhetoric that the ECB remains committed to bringing down inflation to its 2.0% target, and thus, justifying the expected 25 bps rate hike this month.

Heading into the critical ECB decision, Eurozone Harmonised Index of Consumer Prices (HICP) inflation stands at 5.5% in June, sharply down from May’s 6.1% increase. The bloc’s Core HICP showed a softer-than-expected increase of 5.4% YoY in June, compared with forecasts of a 5.5% clip.

Soft Eurozone inflation data prompted several ECB policymakers to push back against expectations of another rate increase in September. It was the dovish remarks from a notable hawk, Governing Council member Klaas Knot, last week that paused the ongoing uptrend in the EUR/USD pair. Knot said rate hikes beyond July are likely but not certain.” His colleague Ignazio Visco noted that “inflation may drop more quickly than forecast.”

When asked in an interview with CGTN Europe, what would argue in favor of ending the rate increases rather than going further, ECB policymaker Yannis Stournaras said, "the argument that inflation is falling and we have found out that we are at the optimal point that further increases of interest rates might damage the economy."

The recent dovish shift in the ECB communication suggests that the Bank’s cues on the interest rates path in September are expected to be of utmost importance for the next direction in the Euro, eventually impacting the EUR/USD valuations.  

Further, the dovish ECB expectations are justified by the disappointing Eurozone and German preliminary Manufacturing and Services PMIs for July, which added credence to the view that the bloc is heading for a recession. 

The Euro could see a sharp correction on Lagarde’s dovish signals on a probable rate hike pause after July, smashing the EUR/USD pair toward 1.1000. Conversely, the main currency pair could scale new peaks beyond 1.1300 if the policy guidance reads hawkish and indicates another rate hike in September.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “EUR/USD is trading on the front foot ahead of the key ECB event. The 14-day Relative Strength Index (RSI) is sitting above the 50 level, keeping the bullish potential intact for Euro buyers.”

Outlining important technical levels to trade the EUR/USD pair, Dhwani notes: “On the upside, EUR/USD buyers need to resist above the 1.1100 barrier on a sustained basis to take out the static resistance near 1.1150. Euro buyers will then target a  break above the 1.1200 round level. Alternatively, the bullish 21-Daily Moving Average (DMA) at 1.1051 will offer strong support to the pair, below which a sharp sell-off toward the 1.1000 psychological mark cannot be ruled out. The July 11 low of 1.0977 will be the next relevant downside cushion.”

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content

Recommended content

Editors’ Picks

EUR/USD stays in negative territory below 1.0650

EUR/USD stays in negative territory below 1.0650

EUR/USD stays under bearish pressure and trades in negative territory below 1.0650 on Monday. The data from the Eurozone showed that the consumer sentiment improved slightly in April but failed to help the Euro rebound.


GBP/USD drops amid increasing rate cut expectations by the BoE

GBP/USD drops amid increasing rate cut expectations by the BoE

The Pound Sterling lost ground against the US Dollar and dropped to its lowest level since November last year as investors began to price in a more dovish Bank of England. A scarce economic docket in the UK, left GBP/USD traders adrift to market mood and dynamics linked to the buck. Therefore, the pair trades at 1.2350, down 0.12%.


Gold pressures $2,330.00, risk of a steeper correction

Gold pressures $2,330.00, risk of a steeper correction

Gold trades on the back foot and loses over 2% on the day below $2,340. Easing geopolitical tensions cause XAU/USD to stage a deep correction, while the resilience of the US Treasury bond yields further weighs on the pair.

Gold News

XRP jumps above $0.50 as Ripple is set to file opposition brief in SEC lawsuit

XRP jumps above $0.50 as Ripple is set to file opposition brief in SEC lawsuit

XRP price climbed to a high of $0.54 on Monday, hours before Ripple files its response to the Securities and Exchange Commission (SEC) remedies-related opening brief. 

Read more

Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium

Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out

While it is hard to predict when geopolitical news erupts, the level of tension is lower. This week's US figures are set to shape the Fed decision next week – and the BoJ may struggle to halt the Yen's deterioration. 

Read more