The European Central Bank may not be done tightening monetary policy, according to Belgian central bank governor Pierre Wunsch. Speaking during European trading hours Tuesday, the ECB policymaker warned that inflation across the Eurozone could remain stubbornly above the central bank’s 2% target for several more quarters. Wunsch indicated this persistent price pressure may force the ECB to deliver at least one additional interest rate hike.
The comments signal continued hawkish sentiment within the ECB’s Governing Council despite recent signs of economic slowdown across the currency bloc. Markets had been pricing in a potential pause or even cuts later this year, but Wunsch’s remarks suggest rate-setters remain focused on bringing inflation back to target regardless of growth concerns. Euro-denominated assets and peripheral sovereign bonds could face renewed pressure as traders reassess the interest rate outlook.
FXnCO Insight
Traders should prepare for extended euro volatility and repricing of ECB rate cut expectations, particularly monitoring upcoming inflation data that could validate or challenge Wunsch’s hawkish stance.
Source: FXStreet