Traders Watch ECB Interest Rate Speculation, EUR/USD Stable

The issue of the ECB's interest rate hike is still circulating. In light of a number of ECB officials giving hawkish sentiment, EUR/USD is steady at high levels.

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The euro was slightly higher against the US dollar at a one-week high. In the late Wednesday (09/February) trading session, EUR/USD was trading at 1.1439. Traders are still monitoring the development of the issue of the ECB interest rate hike ahead of the release of US CPI data tomorrow.

"We revised our ECB rate forecast to reflect a more hawkish statement from ECB President Christine Lagarde," said Marco Valli of UniCredit. It expects the ECB's interest rate hike of as much as 25bp by the end of this year.

After the announcement of the ECB's monetary policy last week, Christine Lagarde did highlight the high inflation of the Eurozone. A few days later, he delivered a more hawkish tone that opened up the possibility of a rate hike. However, he later dampened the outlook rate hike by saying that the increase in inflation would only be temporary, so that massive monetary tightening was still not needed.

Bundesbank President More Optimistic

In contrast to Lagarde, Bundesbank President Joachim Nagel is more assertive in voicing his hawkish views. In an interview with Die Zeit media today, the head of the German central bank clearly stated that interest rates could rise in 2022.

"If the (inflation) figure remains unchanged in March, then I will choose normalizing monetary policy," Nagel told Die Zeit, "The first step is to stop buying net assets in 2022. Then, interest rates can be raised before the year ends. "
He also continued, "The cost of the economy will rise further if we act too slowly than if we act at the right time. If we act more slowly when we already have to raise interest rates, then we must raise interest rates more substantially and quickly. Financial markets will then respond with greater volatility."

Nagel is not the only ECB official to openly mention a rate hike this year. Previously, the chairman of the Dutch central bank, Klaas Not, also expressed the importance of increasing loan interest rates which have not changed since 2011.