The President of the European Central Bank (EBC), Christine Lagarde, took another cautious step yesterday towards the first interest rate cut. She mentioned June as a potential timeline but was cautious about the pace of future monetary policy loosening. Meanwhile, during the second day of testimonies in Congress, Powell conceded that the Federal Reserve (Fed) is close to gaining certainty, which will allow the beginning of a cycle of easing monetary conditions. The EUR/USD rate responded to the EBC’s decision with a drop to 1.0860, followed by a movement in the opposite direction to the level of 1.0950. The Dax gained 0.7%, Nasdaq Composite 1.5%, Sp500 increased by 1%, while Dow Jones ended the day with a positive result of 0.3%. Attention is now shifted to the NFP report today.
In its statement, the EBC reiterated its view that maintaining the current level of key interest rates “for a sufficiently long period” will bring inflation back to the 2% target in the long term. For the first time, EBC President Lagarde suggested a possible first interest rate reduction in June. She said the EBC will have more data at the April meeting and much more in June to decide whether the inflation problem has been solved in the long term. On the pace of potential cuts, Lagarde remained cautious and stressed that future decisions will rely on data. New inflation and GDP projections have been revised downwards. The inflation rate is expected to average 2.6% in 2024 and then 2.1% in 2025. The current economic growth assumption for this year is 0.6%, followed by 1.5% and 1.6% in subsequent years. Lagarde acknowledged that the EBC will not wait for rate cuts until its bank target is achieved.
During his testimony before the Senate Banking Committee, Powell clearly indicated that the Fed is close to being confident that inflation is steering permanently towards the central bank’s target. This is a crucial condition for starting money cost cuts. This statement was not groundbreaking but led to a weakening of the US dollar, a rise in stock indices, and falls in bond yields.
We also received a press conference from the president of the National Bank of Poland (NBP). In the beginning, it was highlighted that the inflation target had been met, but Glapinski also remarked that maintaining rates at a restrictive level is due to many factors of uncertainty, including further government action concerning anti-inflation shields. The NBP is pleased with the strong appreciation of the Polish zloty, which the bank attributes to the solid fundamentals of the Polish economy. However, Glapinski also noted that any actions by the Fed and EBC (rate cuts) in mid-year will not in any way determine the decision of the Monetary Policy Council to begin faster easing of monetary conditions.
Łukasz Zembik Oanda TMS Brokers
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