Rates as of 0500 GMT

Market Recap

EUR was the leader after European Central Bank ECB President Lagarde gave the most specific guidance yet about the Governing Councils intentions. In a blog post, she said

I expect net purchases under the APP to end very early in the third quarter. This would allow us a rate liftoff at our meeting in July, in line with our forward guidance. Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter.

She said that after that, it depends on how inflation develops. If it seems to be stabilizing at their 2 target, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. But if the Eurozone economy seems to be overheating and inflation still above target, then iit would make sense for policy rates to be raised sequentially above the neutral rate. But the situation is complicated because factors like high energy prices are dampening demand so that inflation and growth are moving in opposite directions a rare event that creates a lot of uncertainty.

The market is now forecasting a  positive deposit rate 0.07 by September, in line with Lagardes expectations.

Lagrde might even be conservative at this. Bloomberg reported that her remarks have irked colleagues who want to keep open the option of moving faster, in that her plan effectively excludes the possibility of a halfpoint move. As the chart shows, the market is forecasting…