In a reiteration of the ECB’s now well-known stance/inflation view, ECB’s de Guindos said that the current phase of higher inflation, which in part reflects an increase in energy prices and supply constraints, could last longer than expected only some months ago. Supply-side shortages may dampen activity while pushing up prices, adding to the uncertainty in the outlook for growth and inflation, he said. 

De Guindos said that rising energy costs are weighing on growth by limiting the purchasing power of households. To prevent the materialisation of the medium-term risks that we have identified, he added, it is essential to maintain the momentum of the recovery and avoid scenarios that could put our price stability objective in jeopardy. To do this, the bank must continue to ensure favourable financing conditions. 

Market Reaction

De Guindos’ comments on inflation are nothing new, but his remarks on the need for the maintenance of favourable financing conditions to ensure the economic recovery continues might be interpreted as dovish. EUR/USD has been gradually ebbing lower in recent trade and recently broke out to fresh year-to-date lows around 1.1420. Dovish ECB vibes may be playing a part, though stronger than expected US manufacturing survey data released earlier in the session is likely to also be weighing on the pair. 

This article was originally published by the original article here.


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