Yesterday, Isabel Schnabel, a member of the ECB Executive Board, made a statement regarding the outlook for monetary policy in the Eurozone.
Her opinion has a great impact on the market, as she is considered one of the main ideologists of the ECB's financial policy, and her words often contain indications on the future course of monetary regulation.
In her view, the European Central Bank's fight against inflation may require another interest rate hike.
“After a long period of high inflation, inflation expectations are fragile and renewed supply-side shocks can destabilize them, threatening medium-term price stability,” she said in a speech Thursday in St. Louis. “This also means that we cannot close the door to further rate hikes.”
The German executive board member spoke a week after the ECB left interest rates unchanged for the first time in a year. Markets and economists believe the deposit rate will remain at 4% until 2024, with inflation slowing sharply in recent months. The gauge dropped to 2.9% in October.
She also noted it took a year to bring inflation to its current level from 10.6%, and it will take about twice as long to get back to 2%.
Schnabel also emphasized that price and wage rigidity means core inflation is more resilient.
The growth in unit labor costs eventually needs to fall back to levels that are broadly consistent with 2% medium-term inflation.
“The disinflation process during the last mile will be more uncertain, slower and bumpier,” Schnabel said, warning of new shocks such as tensions in the Middle East, strikes at LNG plants in Australia and global warming as elements that “could derail the disinflation process.”
The statements about maintaining tight policy in the eurozone came amid hints from Powell that the Fed is done hiking rates to support markets. This contrast in intentions is providing short-term support for EURUSD. Yesterday, the pair tried to renew the price high of October 31. It is likely that at the opening of the US session today EURUSD will make another attempt to reach the 1.067 mark.
Overall Recommendation is to buy EURUSD with a target of 1.067.
The protective order could be placed at 1.059.
This content is for informational purposes only and is not intended to be investing advice.
