The ECB's policy stance has also changed? Lagarde shows signs of turning eagle The euro has risen for five consecutive days

On Thursday, local time, although the "Bank of England almost raised unconventional interest rates by 50 basis points" to grab the headlines of monetary policy, the European Central Bank, which updated its monetary policy decision on the same day, also quietly changed: it was not likely to raise interest rates within the year.

In Thursday's announcement, the ECB's decision to keep key interest rates unchanged and halt the PEPP (Emergency Purchase Program for the Pandemic) program in March was fully in line with market expectations, and what really triggered market volatility was the subsequent press conference by Governor Christine Lagarde.

High inflation Lagarde also turned hawkish

Lagarde said at a news conference that euro zone inflation may continue to rise for a longer period of time than previously expected, but it will still decline during the year. Compared to policy expectations in December last year, the risk to the inflation outlook is mainly focused on further expansion, especially in the short term, and the current situation has indeed changed.

The ECB governor confirmed that while members of the bank's board of governors were "unanimously concerned" about inflation, they decided not to rush to make a decision until more information was available.

Earlier this week Eurostat released january 2022 inflation data, in which the euro area CPI rose 5.1% year-on-year to a record high, well above the median analyst expectation of 4.4%.

Lagarde said on Thursday that the main reason for higher-than-expected inflation in January was the direct and indirect impact of soaring energy prices, in addition to rising logistics and fertilizer costs also increasing pressure on food price inflation.

Interestingly, Lagarde only said on Thursday that he would carefully assess the situation and rely on the data to make a judgment compared to his previous statement that "the conditions for raising interest rates in 2022 are unlikely to be met".

Stefano Pesole, an analyst at ING Exchange Rate Strategy, said the ECB today opened the door to speculation that it will tighten monetary policy, and now the market is free to speculate that the ECB will change guidance at its March monetary policy meeting.

Market reaction: The euro has risen expectations for a rate hike during the year

After Lagarde's statement, eur/USD rose more than 1% above 1.14 during the day, against the background of risk aversion induced by the sharp decline in US stocks. The European Money Market's bet on the ECB's interest rate hike during the year also rose to 40 basis points from 25 basis points before the policy decision was announced.

In contrast to the exchange rate, European sovereign bonds suffered a sell-off, with the Italian 10-year bond yield soaring by 19 basis points, the spread with the European benchmark German government bond also reaching the highest value after 2020; the german two-year bond yield, which is most sensitive to policy rates, also jumped 13 basis points to -0.32%, which is also the highest value since 2015, while the five-year German bond yield is also close to 0%.

According to the schedule, the ECB will hold its next monetary policy meeting on March 10.

(Source: Financial Associated Press)