ECB Signals September Rate Cut After Eurozone Inflation Falls to 2.1%
President Lagarde says the governing council is "increasingly comfortable" with the disinflation path — the euro slips against the dollar as derivatives markets price in a faster pace of easing.
The European Central Bank signaled on Thursday that it is prepared to cut interest rates at its September meeting, after fresh data showed eurozone inflation cooling to 2.1% in July — its lowest reading in over three years.
"We are increasingly comfortable with the disinflation path," ECB President Christine Lagarde told reporters in Frankfurt, adding that the governing council would take a "meeting-by-meeting" approach but that the balance of risks had shifted.
The euro slipped as much as 0.4% against the dollar following the remarks, as derivatives markets moved to price in a faster pace of policy easing through year-end. Money markets now imply roughly an 80% probability of a 25 basis-point cut in September, up from around 55% before the press conference.
Economists at several major banks revised their forecasts within hours of the announcement, with most now expecting two further cuts before the end of the year. Bond yields across the eurozone fell in tandem, with the German 10-year Bund yield dropping to its lowest level since March.
Sophie covers currency markets and central bank policy across Europe, with a focus on how rate decisions ripple through FX pairs. She has been tracking the ECB's policy path since the start of the current easing cycle.
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