EUR/USD: ECB Plans July Rate Hike, Inflation Targets Challenging

European Central Bank (ECB) President Christine Lagarde affirmed during the post-meeting news conference that the ECB is likely to continue raising rates in July. Lagarde emphasized that they are not yet at their destination and still have ground to cover in reaching their target. The decision to raise rates by 25 basis points was in line with the ECB's determination to achieve their objectives in a timely manner.

In response to questions about the inflation outlook, Lagarde stated that the current parameters projecting 2.2% inflation in 2025 are not satisfactory or timely. These considerations have guided the decisions made by the ECB.

Following Lagarde's comments, the EUR/USD pair gained bullish momentum and reached a monthly high near 1.0900 on Thursday.

The ECB's decision to raise key rates includes an increase to 4% for the interest rate on main refinancing operations, 4.25% for the interest rate on the marginal lending facility, and 3.5% for the interest rate on the deposit facility.

Revised macroeconomic projections from Eurosystem staff indicate an average headline inflation of 5.4% in 2023, 3.0% in 2024, and 2.2% in 2025. The ECB highlighted that projections for inflation excluding energy and food have been revised upward, particularly for this year and next year, considering past upward surprises and the robust labor market's impact on the speed of disinflation.

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