ECB Gasping for air.
Updated
European Central Bank (ECB) Chief Economist Philip Lane said on Wednesday that the current transition will require the ECB to continue to raise interest rates over the next several meetings, as reported by Reuters.
"Encouraging market intermediation of government deposits remains desirable in the long term."
"Most measures of longer-term inflation expectations currently stand at around 2%."
"If energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices."
"Rate hike has been well transmitted to money market rates."
"Eurozone inflation drivers are of a different nature compared to demand-driven overheating dynamics."
"The appropriate monetary policy for the euro area should continue to take into account that the energy shock remains a dominant driving force."
"Inflation dynamics associated with the energy shock component, to which the euro area is particularly exposed, are of a different nature compared to demand-driven overheating dynamics."
EUR/USD is struggling to preserve its recovery momentum after this report and was last seen gaining 0.25% on the day at 0.9995.
"Encouraging market intermediation of government deposits remains desirable in the long term."
"Most measures of longer-term inflation expectations currently stand at around 2%."
"If energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices."
"Rate hike has been well transmitted to money market rates."
"Eurozone inflation drivers are of a different nature compared to demand-driven overheating dynamics."
"The appropriate monetary policy for the euro area should continue to take into account that the energy shock remains a dominant driving force."
"Inflation dynamics associated with the energy shock component, to which the euro area is particularly exposed, are of a different nature compared to demand-driven overheating dynamics."
EUR/USD is struggling to preserve its recovery momentum after this report and was last seen gaining 0.25% on the day at 0.9995.
Note
"EU Commission proposes 180 euros per megawatt hour revenue cap for non-gas fueled power generators.""EU revenue cap would apply to wind, solar, biomass, lignite, nuclear and some hydropower generators."
"EU proposes windfall profit levy to claw back surplus profits from fossil fuel companies."
"EU levy would recoup 33% of oil, gas, coal, refining companies' surplus taxable profits in the fiscal year 2022."
"EU levy would apply to fossil fuels companies that have tax obligations in EU countries."
"EU proposes mandatory target for EU countries to cut electricity use 5% during peak price periods."
The shared currency holds its ground following this development and the EUR/USD pair was last seen rising 0.32% on the day at 1.0002.
Note
European Central Bank (ECB) President Christine Lagarde said in her appearance on Friday that “hikes should send a signal that we'll meet price goal.”Additional comments
“We are facing a supply shock but also strong elements on the demand side.”
“We have to react according to the complicated situation on the supply and demand sides.”
“Our actions may way on growth, but it is a risk we have to take because price stability is priority.”
Earlier on, the central bank policymaker Olli Rehn said, “I assume further rate hikes going forward.”
Meanwhile, ECB Vice President Luis de Guindos said that “we do not have any estimates of the terminal rate.”
EUR/USD is off the lows, still down 0.30% on the day at 0.9970 on the above comments.
Note
European Central Bank (ECB) Vice President Luis de Guindos said on Monday that “growth slowdown is not enough to ease inflation.”“Inflation expectations need to be well anchored,” the central bank policymaker said.
He further said that “it is still too early to issue an opinion on Spanish tax proposal on banks, government has still not consulted the ECB.”
Market reaction
The shared currency is unfazed by the above comments, with EUR/USD losing 0.37% on the day to trade at 0.9971 at the time of writing.
Trade active
EUR/USD remains under heavy pressure against the backdrop of the unabated rally in the greenback. The pair dropped to levels last seen in June 2002 around 0.9550, leaving the door open to the continuation of this trend in the very near term at least.In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.
Furthermore, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – adds to the sour sentiment around the euro
Trade active
Take profit 0.95600 hit! Wait until market breaks and retests under the channel before looking for any aggressive sell position. 400+ PIPS collected so far!
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