Lagarde Dampens ECB Rate Hike Expectations, Euro Weakness Ensues

European Central Bank (ECB) President Lagarde has tempered expectations for another back-to-back rate hike next month, citing higher long-term yields and the need for a measured response to inflation.

In a recent statement, Lagarde pushed back against expectations for the ECB to deliver another consecutive rate hike in October. She emphasized that with second-round effects so far absent, the ECB should continue to adopt a 'measured response as appropriate to keep inflation in check.'

This development has contributed to euro weakness this week, with the paring back of ECB rate hike expectations reducing hopes for an interest rate increase soon.

According to Lagarde's statement, inflation in the euro-zone would need to surprise meaningfully to the upside in September to refuel October rate hike speculation. This implies that any significant upward move in inflation data will be necessary for the ECB to consider another rate hike.