Lagarde Flags Upside Inflation Risks, Euro Strengthens on Hawkish ECB Pivot

ECB President Lagarde warned of upside inflation risks exceeding forecasts, citing 4.2% services inflation, 4.5% Q4 wage growth, and supply shocks, driving euro gains, bond yield jumps, and ~50bps less 2025 easing priced in. This hawkish turn follows April 14 caution on energy shocks risking 4.8% inflation and April 16 dovish calls from Schnabel and Villeroy deeming April hikes premature, with markets pricing 20% April odds, 70% June odds, and two year-end hikes amid euro weakness. The shift boosts EURUSD upside momentum but heightens volatility ahead of key data.