ECB’s Lagarde says too early to dismiss current economic shock

ECB President Christine Lagarde stated it is premature to dismiss the current economic shock, signaling ongoing concerns about downside risks to growth and price stability. Her comments reinforce expectations that the ECB will maintain a cautious policy stance, keeping rate-cut timing uncertain and supporting the euro through elevated rate differentials. The euro and eurozone sovereign bonds are particularly sensitive, as prolonged policy uncertainty may delay yield decomposition and limit steepening in the curve. Markets are now focused on the upcoming ECB staff macroeconomic projections, which will provide updated inflation and growth forecasts that could clarify the central bank’s reaction function. Any revision to inflation persistence assumptions will be critical for forward guidance and asset repricing.

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