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ECB warnings fall on deaf ears

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Whatever Lagarde is selling, markets aren’t buying

Christine Lagarde was keen to stress today that the view within the central bank remains that inflation is temporary and that it will return to below its target over the medium term. She also insisted that their analysis does not support market-based lift-off expectations while acknowledging that inflation pressures are lasting longer than it previously envisaged, which may explain why markets are not reassured by her words.

It’s hard for the central bank to be overly confident in their inflation assessments when they have proven to be overly optimistic so recently. That came across despite Lagarde’s insistence that guidance for lift-off won’t be satisfied in near future and that they believe pressures will abate over the course of the next year. She also passed on the opportunity to suggest markets are ahead of themselves.

Yields on euro area debt rose over the course of the ECB press conference while the euro spiked. It would appear traders were either unconvinced by Lagarde’s performance or the central bank’s analysis and expect it to change course over the next year. Either way, there’s clearly a gulf between the ECB and the markets.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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