European Central Bank President Christine Lagarde will give a video message this Friday at an event in Marseille, France. This event celebrates the 75th anniversary of the International Confederation of Popular Banks. On Thursday, Lagarde discussed the ECB’s choice to lower key rates by 25 basis points, which was expected. She highlighted a slowdown in the services sector and pointed out that the easing cycle may be coming to an end. Recent reports from the ECB show that most members of the recent meeting preferred to keep rates steady in July. Officials expect that rate cuts may be paused in the following month. Lagarde’s comments indicate a changing approach that has been developing over time. Although the rate cut this week was anticipated, the noteworthy aspect was the hint that the push for more reductions might be weakening. By mentioning the slowdown in the services sector, she recognized that an area previously seen as stable is now showing signs of weakness. The meeting minutes and subsequent interviews suggest that policymakers are adopting a cautious wait-and-see strategy. This highlights that they are more focused on ongoing inflation than on fragile growth. Inflation remains stubborn in certain areas of the economy. This is why the message was not about a steady decline in rates, but a clear intent to pause. During the recent ECB meeting, the consensus was to keep rates unchanged in July. This isn’t speculation; it comes from a summary provided shortly after the meeting. Notably, even those open to future rate cuts emphasized the need to wait for more data on wages and profit margins expected later this summer. There is a growing desire for stronger confirmation before making any decisions. For those managing short-term positions, the clarity about July reduces uncertainty. However, the focus now is less on the upcoming meeting and more on being flexible for developments in September. Volatility may return around that time, especially if wage trends don’t improve. Following Lagarde’s remarks, forward rate markets showed a slight tightening in expectations for further cuts this year. Traders should view the ECB’s shift not as a reversal, but as a cautious step back after testing the waters. Exposure to summer meetings should be limited, as most of the Governing Council members seem unwilling to make new commitments. With mixed growth signals and persistent inflation in services and energy, the balance of risks has shifted towards caution. While headline inflation has decreased, core inflation remains resilient. This is where the current debate lies—beneath the surface. In the upcoming weeks, the risks are more about surprises from wage or margin updates rather than from central bank statements. The little forward guidance left is now more reactive than proactive. When considering pricing spreads and strategies for contracts related to the euro area, it’s time to adjust expectations toward longer pauses instead of steady reductions. The current situation does not signal a return to neutrality anytime soon. We see more value in having options rather than making directional bets through July and early August. This highlights the reluctance to make moves without new supporting evidence.

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