FX

ECB President Lagarde signalled an upcoming turnaround in interest rate policy. The news caused the euro to appreciate noticeably yesterday, pulling gold up to $1,865 for a time. However gold in euros is kept in check, economists at Commerzbank report.

Lagarde endorsed an exit from negative rates in Q3 

“Lagarde announced ‘a progressive further normalisation of interest rates towards the neutral rate’ for the period after the third quarter.”

“Our ECB watcher believes that 1-1.5% would be considered a neutral rate by the ECB. We assume that the ECB will raise the deposit rate by 25 basis points at each of its seven meetings between July and next May, bringing the rate then to 1.25%. The market expects interest rates to increase to 1.0% by then.” 

“We believe that the euro could profit for a while from the prospect of a more restrictive ECB monetary policy, providing that the situation in Ukraine does not deteriorate significantly. This should support gold in US dollars but keep gold in euros in check.”

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