Euro: ECB tightening outlook offers support against US Dollar - BNY

BNY's Geoff Yu highlights that European Central Bank (ECB) Executive Board member Isabel Schnabel sees further rate hikes as necessary, with Euro area inflation risks still tilted to the upside and growth more resilient than expected. Schnabel warns that waiting for wage effects could leave the ECB behind the curve, implying a hawkish bias that underpins the Euro even as inflation is expected to stay above 2% for an extended period.

ECB rhetoric underpins single currency

"ECB Executive Board member Isabel Schnabel said further rate hikes will be necessary because inflation risks remain tilted to the upside with euro area growth proving more resilient than expected."

"She argued that inflation is likely to remain above 2% for an extended period as high energy costs persist, with gas prices and low storage levels adding to the risks."

"Schnabel warned that waiting for these pressures to feed into wages would leave the ECB behind the curve and could ultimately require more aggressive tightening."

"She also pointed to stronger fiscal support, higher defense spending, AI-related investment and improving sentiment indicators as reasons for greater confidence in the growth outlook."

"The amount of further tightening will depend on incoming data."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)