Lagarde to head ECB. BoE to join global cutting frenzy? Lagarde to head ECB. BoE to join global cutting frenzy? Lagarde to head ECB. BoE to join global cutting frenzy?

Lagarde to head ECB. BoE to join global cutting frenzy?

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The appointment of Christine Lagarde as next ECB president and Trump nomination of two likely policy doves for empty Fed Board of Governors spots has driven another round of dovish central bank anticipation and lower yields and higher Japanese yen. The US dollar has not committed directionally yet as traders eye this Friday’s US jobs report to further size up the odds for a larger rate cut at the July 31 FOMC meeting.

Trading interest

Those choosing USDJPY shorts versus EURUSD longs yesterday will maintain the former with lowered stop below 108.50. Cautious on EURUSD longs, still prefer a half long position with stops lowered a bit more to below 1.1225 to see if the market gets over the “Lagarde as ECB president” news and can rally anyway. If USD turns lower, looking to put on an AUDUSD long on close above recent 0.7036 high.

Market wrap – JPY is king of the hill as global yields continue to collapse.

The JPY is king of the hill once again on the sense that central banks are all caving in the direction of more policy support. The appointment of Christine Lagarde to head the ECB was the most important development yesterday, but the BoE’s Carney added to the energy with an indication that policy cuts are back on the table, and Trump announced two new Fed Board of Governor nominations with a likely dovish policy tilt. Perhaps most spectacularly, the long end of the US yield curve has dropped over the last couple of session more quickly than the market can price rate cuts, so the US yield curve has actually flattened for the 2-10 maturities as the 10-year benchmark trades this morning well under 2.00%.

Lagarde as ECB president

The horse-trading for top EU posts and the ECB presidency is now over and has produced surprise appointees that were never even on the list of top candidates. Grabbing the most of the market’s attention was the appointment of Christine Lagarde to head the ECB. The immediate spin is that Lagarde is a dove and is likely to prove an activist ECB President, defaulting to dovish policies that provide maximum accommodation. But Lagarde is no economist or technocrat and looks more like a  political appointment, a strong leader of  the ECB’s Board of Governor and someone who can act forcefully and sway the EU’s political heads to make the key fiscal and other policy decisions that will matter from here. Those leaders will also have to be convinced to provide the ECB with the mandate to reach for even more unconventional tools from here – and Lagarde seems the kind of personality that can do a lot of convincing. The market has rather fairly sold the euro on the announcement of Lagarde, though we are still intrigued on whether the single currency can hang in there versus the US dollar. 

A rate cut from the BoE?

Mark Carney was out speaking yesterday and railed against the threat to the economy from protectionist policies, a threat that could require a policy response: “In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion.” He also echoed other central bankers on the need for fiscal stimulus. This speech saw a kneejerk response to pricing of BoE policy, with the December short sterling STIR pricing in about 7-8 more basis points of easing. Sterling dipped as well, with GBPUSD now back close to the important 1.2500 area.

Two new Fed appointees

US President Trump has chosen two new Fed appointees for the two empty slots on the Board of Governors. The one, Christopher Waller, is a more conventional policy dove from within the Fed, while the other, Judy Shelton, is a far more interesting profile and an outspoken critic of Fed policy. She is the current head of the European Bank for Reconstruction and Development and has a number of compelling ideas about the need for a new international reserve asset, as well as cutting IOER for banks back to zero, even if she is a nominal dove on the need for interest rate cuts. IN all, these two nominees would only add to the dovish potential from a Fed that is already firmly set on a dovish path. 



Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.