ECB's Lagarde and $EURUSD Volatility
Lagarde's hawkish tone yesterday was unexpected, frankly. It’s moved the needle on rate hike expectations far more than I thought it would, especially with the inflation prints still looking a bit sticky. We're seeing $EURUSD at 1.15473, a nice jump, but it feels like the market's still trying to price in the full scope of what that means for a potentially fractured EU economic recovery. I'm watching the Polymarket odds on ECB Rate Hike by Q3 2024 closely; the implied probability has shifted dramatically since her speech. If the market continues to bake in multiple hikes, that $EURUSD could have more room to run.
It’s also making me reconsider my watchlist bets that were banking on a softer Eurozone. Might need to trim some positions that benefit from a weaker euro if this sentiment holds. It feels like the market got caught a bit flat-footed, myself included.
Lagarde finally got tired of being asked about inflation and decided to throw a hawkish curveball. Now we get to see if the EU economy can catch it without fumbling too badly.