ECB’s Panetta: Inflation to hover around 3% and remain above that level until early 2027

European Central Bank (ECB) policymaker and Governor of the Bank of Italy, Fabio Panetta, warned in the European trading session on Wednesday that inflationary pressures in the Eurozone economy could hover around 3% and will likely remain above that level beyond this year.

Additional remarks

In considering future interest rate decisions, ECB's goal is to keep inflation expectations firmly anchored, limiting indirect and second-round effects of shocks.

Several indicators suggest rise in equity markets seen after Iran conflict is due to an underestimation of risks.

Risks linked to higher energy prices, tighter financial conditions and persistent geopolitical uncertainty appear to be only partially incorporated into market evaluations.

Market reaction

No immediate impact is seen in the Euro (EUR) following remarks from ECB's Panetta. At press time, EUR/USD trades almost flat at around 1.1424.

Panetta flags sticky Euro inflation and underpriced geopolitical risks

ECB’s Panetta delivers a stronger-than-usual signal, with a 6.2/10 FXS Speechtracker score versus a 5.2/10 historic average, pointing to inflation hovering around 3% and staying above that level until early 2027. This marks a mildly hawkish tilt, as the emphasis on keeping inflation expectations firmly anchored and limiting second-round effects implies reluctance to ease policy quickly, supporting a firmer Euro bias relative to prior speeches.

Panetta’s warning that equity market gains after the Iran conflict reflect an underestimation of risks, and that higher energy prices, tighter financial conditions and persistent geopolitical uncertainty are only partly priced in, reinforces a cautious stance. For FX, this combination of sticky inflation and underpriced risk argues for elevated volatility in Euro pairs, with markets likely to reassess the path of Euro-area rates and risk premia in coming sessions.