The euro has reversed directions and edged higher on Wednesday. Currently, EUR/USD is trading at 1.1564, up 0.30% on the day.

ECB member Villeroy downplays inflation

Inflation continues to be the hot topic for many of the major central banks, and the markets are becoming increasingly sceptical that ‘high inflation is transitory” as Jerome Powell and other central bank heads have been declaring to anyone who will listen. The ECB has followed this script and downplayed fears of a surge in inflation, even though September CPI in the eurozone hit its highest level since 2008.

ECB member Francois Villeroy, who is also head of the French central bank, has said that he expects inflation to fall below 2%, which is the ECB’s target, within a year. On Tuesday, Villeroy acknowledged that he had concerns over short-term inflationary pressures, but at the same time he noted eurozone inflation could miss the inflation target in 2023. In other words, the ECB is faced with a situation where the inflation has exceeded the target in the short term, but could fall short of the target in the medium-term.

Villeroy’s comments echo what ECB President Christine Lagarde said in September that the ECB should not overreact to what she called a temporary spike in inflation. Lagarde has dismissed the notion of an ECB taper, stating “the lady isn’t tapering”. However, inflation doesn’t look like it will ease anytime soon, given the rise in energy prices, strong domestic demand and chronic supply-chain disruptions. Some analysts are projecting that inflation could rise as high as 4 per cent before the end of the year, which could mean that the ECB may have to take steps to curb inflation from overheating the economy.

EUR/USD Technical

  • On the downside, 1.1523 has some breathing room in support as EUR has moved higher. The next support line is 1.1472.

  • 1.1633 is the next line of resistance, followed by 1.1692.

EURUSD

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