The European Central Bank should deliver at least one more interest rate increase to anchor inflation expectations, ECB policymaker Gediminas Šimkus said Wednesday morning during European trading hours. The Lithuanian central bank governor cited persistent upside risks to inflation as justification for continued monetary tightening, signaling the ECB’s hiking cycle may not be finished despite recent market speculation about a pause.
The comments arrive as traders have been pricing in a potential end to the ECB’s aggressive rate campaign that began in mid-2022. Šimkus’s hawkish stance suggests the Governing Council remains concerned about inflation becoming entrenched in the eurozone economy, even as headline price pressures have moderated from peak levels. The remarks are likely to pressure euro-denominated assets and could strengthen the single currency against major peers as markets reprice rate expectations.
FXnCO Insight
Traders should prepare for potential EUR strength and continued volatility in eurozone bond markets as at least one additional ECB rate hike now appears more likely than previously anticipated.
Source: FXStreet