Euro Jumps 30 Pips on Hawkish ECB Comments, But Economic Indicators Tell Another Story
The European Central Bank was the last to start tightening the monetary policy among central banks and they have been trying to keep up the hawkish rhetoric. However, markets are expecting them to start cutting interest rates, probably by March-April, as the Eurozone economy continues to remain in a difficult position starting the new year. But, ECB members continue to sound upbeat, keeping the Euro up, with EUR/USD popping 30 pips higher after Schnabel’s comments.
ECB’s Schnabel During the #AskECB event
- The near-term economic outlook remains weak in line with our projections
- There is evidence that sentiment indicators are bottoming out
- Financial conditions have loosened more than projected, while energy prices have been weaker
- The drop in unemployment to a historical low confirms continued strong resilience in labour markets, which is broadly in line with the December 2023 staff projections
- As inflation falls, we continue to expect a gradual decline in wage growth in 2024
- Markets understand well that our policy is data-dependent and we have clearly defined the elements of our reaction function
- Our projections foresee inflation reaching our 2% target in 2025. So we are on the right track. Geopolitical tensions are one of the upside risks to inflation as they could drive up energy prices or freight costs. That’s why we need to remain vigilant.
- It’s too early to discuss rate cuts
- We expect inflation to reach 2% in 2025 and project that we can achieve this without causing a deep or prolonged recession
So far all the comments are right in line with what she’s been saying for a while.
According to the most recent VDMA data, German engineering businesses’ order books fell 13% year on year in November. This is a return to a double-digit fall following October’s 5% drop. From September to November, orders fell 12% year on year, with domestic orders decreasing 17% and overseas orders falling 11%. According to the VDMA, “there is still no sign of this downturn bottoming out, as our customers worldwide would first have to regain confidence in foreseeable growth and stable political processes” .
EUR/USD Live Chart
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