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ECB keeps rates steady but lowers inflation and growth forecasts

As expected, the European Central Bank (ECB) left interest rates unchanged for the time being. However, ECB President Lagarde hinted at a rate cut later this year by lowering inflation and growth forecasts. Meanwhile, US Federal Reserve Chairman Jerome Powell stressed at his second hearing before the US Senate that the Fed is "not far away" from easing monetary policy. The New York Stock Exchange indices then resumed their record run and most Asian bourses also moved higher.

Alessandro Fezzi, LGT
Reading time
5 minutes
ECB Lagarde
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ECB President Christine Lagarde stressed that the process of fighting inflation was ongoing, but that progress had been made. "So we are more confident, but we are not confident enough, and we need more evidence, more data, and we know that those data will come in the next few months. We will know a little bit more in April and a lot more in June," Lagarde said at the press conference. Capital markets are currently pricing in a first rate cut in June. This assumption has also been reinforced by the ECB's revision of its inflation and growth forecasts. The ECB now expects economic growth of 0.6% for the current year, compared with 0.8% previously. GDP growth in the eurozone is forecast at 1.5% in 2025 and 1.6% in 2026. The inflation forecast has been lowered from 2.7% to 2.3% on average for the year, painting a more positive picture for the current year. Euro area inflation fell to 2.6% in February from 2.8% in January. However, core inflation, which excludes energy and food prices, remained high at 3.1%. Looking ahead, the ECB expects inflation to reach its 2% target in 2025 and to cool further to 1.9% in 2026. As a result, European bond yields fell slightly.

On Wall Street, stock indexes extended their record rally to some extent on Thursday, thanks to renewed hopes of interest rate cuts in the near future. This was particularly evident in the technology sector, with the tech-heavy Nasdaq index rising by around 1.6%. The S&P 500 closed around 1% higher at 5,157.36, also a new record high. The Dow Jones Industrial rose 0.3% to 38,791.35. At the same time, the yield on ten-year US government bonds fell to 4.09% and the US dollar lost ground against the euro, with EUR/USD peaking at 1.0949. Fed Chairman Jerome Powell said earlier: "We are waiting for confidence to build that inflation is sustainable at 2%. When we have that confidence, and we're not far from that, it will be appropriate to begin to remove accommodation.

Meanwhile, the US trade deficit widened at the start of the year. Compared with the previous month, the deficit rose by USD 3.2 billion to USD 67.4 billion, the highest deficit since April 2023. While exports increased by only 0.1% in January compared to the previous month, imports rose by 1.1%.

Most Asia-Pacific markets ended the week higher after both the Fed and the ECB held out the prospect of a medium-term turnaround in interest rates. In Tokyo, the Nikkei 225 rose 0.7% and in Seoul the Kospi climbed 1.3%, while the small-cap Kosdaq gained 0.5%. Hong Kong's Hang Seng Index was up 1.1% and China's CSI 300 was up just under 0.2%.

The price of gold continued its record run on Thursday, hitting a high of USD 2,161 per troy ounce on the London Stock Exchange. In euro terms, gold also reached a high of EUR 1,982. The main drivers appear to be the prospect of falling interest rates later this year, as well as geopolitical risks and central bank gold buying.

In Switzerland, the unemployment rate fell slightly to 2.4% in February from 2.5% in the previous month, according to the State Secretariat for Economic Affairs (Seco). This is the first fall in the unemployment rate since May last year, but according to Seco this is mainly due to seasonal factors in the construction industry. In seasonally adjusted terms, the unemployment rate remained unchanged at 2.2%.

Company news in focus: Zurich Airport and Mikron.

Economic data in focus: Germany industrial production and producer prices, France trade balance, Italy producer prices, Eurozone GDP, US employment report.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi
Quelle: LGT Bank (Schweiz) AG

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