ECB Holds Steady as Inflation Path Diverges From the Fed
Lagarde signals patience as eurozone disinflation stalls, widening the policy gap with Washington and reshaping the cross-Atlantic rate trade.
Christine Lagarde used Thursday's press conference in Frankfurt to push back firmly against market expectations of an imminent rate cut, cautioning that core services inflation across the eurozone remains uncomfortably above the central bank's two-percent target.
The decision leaves the deposit rate at 2.75 percent for a fourth consecutive meeting, in stark contrast to the Federal Reserve's accelerating easing path. Fixed-income strategists at Deutsche Bank now expect the cross-Atlantic policy gap to widen to 100 basis points by the autumn.
Currency markets responded immediately. The euro climbed to a six-month high against the dollar, weighing on exporter equities from Stuttgart to Milan. Bunds steepened across the curve as traders priced in a longer plateau.
Privately, several Governing Council members concede that fiscal expansion in Germany and France is complicating the disinflation arithmetic. The bank's June projections, due next month, are expected to revise the 2026 inflation forecast upward.
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