The ECB's Chief Economist, Philip Lane, said that Eurozone inflation would remain high at the start of the year, but fell again towards the end of the year.
The euro bounced above the 1.1200 threshold against the US dollar in early-week trade, then climbed again into the 1.1260s band on Tuesday (1/Feb). Single Currency is currently supported by the easing of market turmoil, USD correction, and the release of the latest German inflation data. However, there are risks that arise from the European central bank's (ECB) monetary policy meeting on Thursday.
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| EUR/USD Daily chart via TradingView |
Monday's release of preliminary German inflation data showed growth of 4.9 percent (Year-on-Year) for January 2022. That pace was slower than December's 5.3 percent growth, but outperformed market expectations and remains within the highest range since the early 1990s. .
This inflation report raises confidence for a number of traders who hope the ECB will be more hawkish, for example alluding to the change in the bond buying program or an increase in interest rates in its scheduled meeting. As a result, the euro was slightly higher even though ECB officials said the rise in inflation would only be temporary.
The ECB's Chief Economist, Philip Lane, told Verslo inios media on January 25 that inflation would remain high at the start of the year, but fall again towards the end of the year. He said, “We are (already) clear from our December forecast that we expect overall inflation for the year to be around 3.2 percent in the euro area, and then to be below 2 percent in 2023 and 2024. Compared to peaks, that's a pretty decent drop. big."
The sluggish ECB inflation expectations have made the majority of analysts believe that the European central bank will not announce major policy changes in the upcoming meeting. This kind of tug-of-war around inflation expectations has the potential to make the euro vulnerable to turbulence after the announcement of the results of the ECB meeting, either up or down.
Soeren Radde, senior economist at Goldman Sachs, noted in last week's research, "We believe that the basic inflation requirement that is close enough to the target for the ECB to raise the Deposit Facility Rate is unlikely to be met in 2022. An increase in 2023 is possible if underlying inflation strengthens. more than expected so far this year, our baseline forecast remains that the ECB will significantly lag behind other major central banks in terms of monetary tightening.”
“Recent developments support our forecast for EUR/USD to fall to 1.1000 in Q1 (2022),” said Lee Hardman, currency analyst at MUFG. for the year (as analysts forecast)."
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