Lagarde Second Round Effects: Not Seen Yet, Growth 1.1%

ECB President Christine Lagarde said on Wednesday that the bank is not yet seeing second-round effects from higher inflation, and EUR/USD rose 0.06% to 1.1205 at press time. The Lagarde second round effects comments matter for euro traders because they show how the ECB reads price pressures beyond energy.

Key Takeaways

Energy-led inflation: Lagarde said inflation is rising mainly, but not only, because of energy prices.
Growth view: She gave euro area growth for 2026 as 1.1%.
Muted euro reaction: EUR/USD moved 0.06% higher on the day at press time.

What Happened

Lagarde spoke on Wednesday about energy-driven inflation, possible wage increases through collective bargaining, French debt and fiscal policy, and growth. "We're not seeing any second round effects yet," she said.

She added that the ECB cannot wait until such effects are in full view. The bank can anticipate them and look for hints, she said.

On growth, Lagarde said: "Growth is not brilliant, but 1.1% growth in 2026 is not bad."

FXStreet's Speechtracker scored the speech 4.6/10, below its historic baseline of 5.6/10. That score is FXStreet's own assessment, not a statement by Lagarde.

Background

The ECB's primary mandate is price stability, defined as inflation around 2%. It manages this mainly through interest rates.

Second-round effects are the pass-through of energy-driven price rises into wages and other prices. Per the source article, higher interest rates usually strengthen the euro, quantitative easing usually weakens it, and quantitative tightening is usually positive for it.

Market Impact

EUR/USD: The currency pair stood at 1.1205 at press time, up 0.06%. Higher interest rates usually strengthen the euro, which links the ECB's inflation reading to EUR/USD.
AUD/USD: AUD/USD held firm near 0.7000 in the Asian session, supported by China's mixed inflation and upbeat trade data. The U.S. dollar was broadly subdued despite the Middle East escalation.
USD/JPY: USD/JPY traded range-bound near 158.50, with intervention risks capping upside.
Gold: Gold fell for the third straight day as its recovery faltered ahead of U.S. inflation data. A bearish daily RSI leaves the $4,100 level at risk.

What to Watch Next

U.S. CPI release: Traders await the data, and gold's recovery faltered ahead of it. The source gives no release date.
ECB Governing Council meetings: The council meets eight times a year. The source gives no date for the next meeting.
Oil prices and Treasury yields: The U.S. dollar paused its correction as oil prices rose and U.S. Treasury yields stabilized.

Bottom Line

Lagarde described inflation as energy-led for now, with no second-round effects visible. For EUR/USD traders, the exposure is to any change in how the ECB reads wage and price data.

Lagarde Second Round Effects Not Yet Visible, ECB Chief Says