ECB's Lagarde: We are likely to be in a position to exit negative rates by end of Q3

• I expect APP to end very early in Q3
• This would allow a rate hike to take place in July, in line with forward guidance
• If inflation stabilises around 2% in medium-term, a progressive further normalisation towards neutral rate will be appropriate
• But the pace and overall scale of the adjustment cannot be determined ex ante
• Situation currently faced is complicated by presence of negative supply shocks
• There are arguments for for gradualism, optionality and flexibility when adjusting monetary policy
• We have one important guidepost for policy, that is to deliver 2% inflation over medium-term
• ECB will take whatever steps are needed to do so
• Full blog

If there were any doubts about the recent hawkish shift by the ECB, they look to be quashed by Lagarde's comments above. That's a big signal of a significant policy shift by the ECB, that is if things do actually go their way.

The big issue now is stagflation risks and how will the ECB cope if the euro area economy is going to be facing a recession later in the year. That's the major caveat to any aggressive tightening policy cycle that they may have planned.

For now though, the euro is liking what it is hearing as the ECB "owl" seems to have picked a side. EUR/USD EUR/USD The EUR/USD is the currency pair encompassing the European Union’s single currency, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The pair’s rate indicates how many euros are needed in order to purchase one dollar. For example, when the EUR/USD is trading at 1.2, it means 1 euro is equivalent to 1.2 dollars. Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the euro (EUR) is the world’s second most traded currency, be The EUR/USD is the currency pair encompassing the European Union’s single currency, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The pair’s rate indicates how many euros are needed in order to purchase one dollar. For example, when the EUR/USD is trading at 1.2, it means 1 euro is equivalent to 1.2 dollars. Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the euro (EUR) is the world’s second most traded currency, be Read this Term moved up from 1.0610 to 1.0635. However, I would be remiss to not mention that money markets have already significantly priced in rate hikes by the ECB for this year - at least four 25 bps rate hikes are already priced in.