Benchmark European bond yields rose and the euro was firm after Christine Lagarde told traders they were wrong to bet the European Central Bank is about to slow the pace of interest rate rises.
The ECB president pushed back against reports earlier this week that suggested the central bank might trim its interest rate hikes from 50 basis points to 25 basis points at its next meeting on February 2nd in response to signs inflationary pressures were easing.
“I would invite [financial markets] to revise their position; they would be well advised to do so,” Lagarde told a panel at Davos.
The ECB has raised its deposit rate from minus 0.5% at the start of July last year to 2% at its December policy meeting after eurozone inflation jumped to a record high of 10.6% in October 2022.
It was confirmed on Wednesday that inflation dipped to 9.2% last month as energy prices slipped, but this remains well above the ECB’s target of around 2%, and Lagarde reiterated to the Davos panel that she was determined to “stay the course” in the battle to reach that goal.
German 10-year bund yields the eurozone benchmark, rose 3.5 basis points to 2.058%, and the euro added 0.2% to $1.0818. The European-wide Stoxx 600 equity index fell 1.3%.