Lagarde expects to raise rates further

Christine Lagarde, President of the European Central Bank said that policymakers will not let this phase of high inflation feed into economic behavior and create a lasting inflation problem.

“If there were evidence that high inflation risked de-anchoring inflation expectations, then the policy rate that is compatible with our target would lie in the restrictive territory”, lagarde said adding that “where rates ultimately settle, and the size of the steps that we move in, will depend on how the inflation outlook evolves as we proceed”.

Lagarde also mentioned that inflation expectations remain relatively well anchored across a range of measures.

ECB President also noted that if energy prices are durably higher during the transition, it may have an impact on industrial production, and moving faster at the start of the hiking cycle clearly conveys our commitment.


So. Lagarde expects to raise rates further and that the terminal rate at which our hiking cycle ends must be compatible with inflation returning durably to our target.

Meanwhile, the euro has extended its losses versus a strong US dollar after ECB’s Lagarde’s comments. EUR/USD was last down 0.6% at 0.9965, still, some way from the two-decade lows at 0.9864 made on September 6.

The US dollar has been bouncy on Tuesday, trading near a two-decade high, as investors held firm on the expectation of another aggressive rate hike by the Fed that starts its two-day meeting today.

Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening. This is supporting US yields and the DXY index that is now not far from 110.79, a level hit earlier this month for the first time since June 2002.