ECB: Kazimir confirms the downward direction, but each step remains data-dependent

Peter Kazimir reaffirms the ECB's accommodative trajectory amid contracting PMIs. The divergence between a hawkish Fed and a dovish ECB deepens - implications for the euro and European sovereign bonds.

The Fact

On June 23, 2026, Peter Kazimir (member of the ECB Governing Council) stated that "the direction is clear" for monetary policy, but that "each step will depend on the data" (Investing.com, June 23, 2026). The ECB cut its deposit rate to 2.0% at its June 2026 meeting - the fourth cut since September 2024 (ECB, June 2026 press release). Against this backdrop, European PMIs are deteriorating: the German services sector falls to a 43-month low (Seeking Alpha, June 23).

Our Take

The contrast is striking: a Warsh-led Fed pushing back cuts to Q1 2027 vs. an ECB continuing to cut amid confirmed European economic weakness. This rate differential widens the EUR/USD gap and exerts structural downward pressure on the euro. For European bond markets, a 10-year Bund at 2.3-2.5% remains attractive in real terms if inflation continues to ease - but the weakness of German PMIs (services at a 43-month low) serves as a reminder that the ECB has little choice: the European economy cannot afford restrictive rates. French OATs and Italian BTPs benefit from the accommodative framework but remain exposed to domestic political instability.

To Watch

ECB September 2026 meeting. Eurozone CPI July 2026. EU flash PMIs July (July 24). EUR/USD level: break below 1.05 = acceleration of Fed/ECB divergence.