As expected, the European Central Bank (ECB) kept interest rates unchanged in this week’s announcement and refrained from giving forward guidance.
ECB head Lagarde and her fellow policymakers unanimously agreed to maintain the deposit facility rate at 3.75% and the interest rate on main refinancing operations on hold at 4.25%.
In their official statement, they noted that “domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.”
Link to official ECB July monetary policy statement
ECB officials also emphasized their meeting-by-meeting data-dependent approach, reiterating that they are not pre-committed to a particular interest rate path.
During the press conference, Lagarde mentioned that risks to their eurozone growth outlook are tilted to the downside. She also introduced the idea of Wage Profit Productivity (WPP) in explaining how they’ll be monitoring how labor costs and their impact on overall inflation evolve based on productivity changes as economic growth slows.
Link to ECB Governor Lagarde’s press conference
Market Reactions
Euro vs. Major Currencies: 5-min
Overlay of EUR vs. Major Currencies Chart by TradingView
The euro, which had been treading carefully in a tight range ahead of the ECB decision, barely budged during the actual central bank announcement since the decision to hold was widely expected.
It did cruise lower briefly following the press conference, before eventually leveling off and pulling higher against most of its peers, except for the U.S. dollar. EUR/JPY resumed trading above its pre-ECB levels a couple of hours later while EUR/NZD and EUR/AUD followed suit.
