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ECB President Christine Lagarde indicated that the central bank’s 2026 inflation forecast of 2.6%, set in March, is likely to be revised upward due to evolving economic conditions. She emphasized that recent data suggests inflation pressures remain persistent, opening the door for a potential rate hike in June. While Lagarde did not explicitly confirm the timing, market expectations for a June tightening have strengthened, with traders adjusting their positioning ahead of the ECB’s next policy meeting.
This development signals continued hawkish bias from the ECB amid stubborn inflation, which could pressure the euro against majors like the USD. Higher inflation forecasts may delay the ECB’s pivot to easing, extending the current tightening cycle. Traders should monitor upcoming inflation data and ECB officials’ speeches for further clues on policy direction.
For global markets, the ECB’s stance reinforces the divergence in monetary policy between the Eurozone and other central banks. Investors should watch for EUR/USD volatility as traders react to shifting rate expectations. The key focus will be on June’s policy decision and whether the ECB aligns with market pricing of a 25-basis-point hike.
