ECB policymaker Kazaks reiterated upside inflation risks in the Eurozone, signaling potential further rate hikes despite the recent US-Iran deal easing energy price pressures.
ECB Maintains Hawkish Stance Amid Persistent Inflation Concerns
European Central Bank (ECB) policymaker Martins Kazaks stated that inflation risks in the Eurozone remain tilted to the upside, even as geopolitical tensions ease following the recent US-Iran memorandum of understanding. His comments come days after the ECB's 25-basis-point rate hike, which lifted the deposit rate to 2.25%, underscoring the central bank's commitment to anchoring price stability.
Kazaks emphasized that while the US-Iran agreement has reduced near-term energy price volatility, the ECB remains vigilant about second-round effects, particularly in the services sector. He echoed ECB President Christine Lagarde's warnings about persistent inflationary pressures spreading beyond energy costs, suggesting that monetary policy may need to tighten incrementally if inflation fails to decelerate convincingly.
Market Reaction and EUR/USD Implications
The ECB's hawkish tone has kept EUR/USD traders cautious, with the pair trading sideways around 1.0750. The dollar's safe-haven appeal has waned as geopolitical risks recede, but the euro faces headwinds from uncertainty over future rate moves. Technical resistance at 1.0800 remains untested, with support near 1.0700.
Kazaks noted that the ECB can move gradually, implying a potential pause in rate hikes to assess summer economic data. However, markets are pricing in a 40% chance of another 25-basis-point hike by September, reflecting lingering concerns over wage-price dynamics and core inflation.
Key Factors to Watch
- Eurozone CPI data for June, due July 16, to gauge inflation trajectory
- ECB's July policy meeting for forward guidance on rate path
- US-Iran deal implementation and energy price trends
- German ZEW economic sentiment index for growth outlook
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