The European Central Bank can afford to wait on further interest rate hikes until new economic forecasts are available, according to ECB Governing Council member Alexander Demarco on Wednesday. The Central Bank of Malta Governor suggested the ECB has room to pause its tightening cycle before committing to additional monetary policy restrictions.
This dovish signal comes as markets assess the ECB’s next moves amid cooling inflation across the eurozone. Demarco’s comments indicate policymakers are increasingly comfortable taking a data-dependent approach rather than pre-committing to further rate increases. The statement suggests the ECB may hold rates steady at upcoming meetings while awaiting updated staff projections that typically accompany quarterly policy reviews.
The euro briefly weakened following the remarks as traders interpreted the comments as reducing the probability of near-term rate hikes. European bond yields also edged lower on reduced tightening expectations. Currency and fixed income markets are now focusing on upcoming inflation data and ECB communications for clearer guidance.
FXnCO Insight
Traders should reduce expectations for aggressive ECB tightening in the immediate term and position for potential euro weakness against currencies where central banks maintain hawkish stances.
Source: FXStreet