ECB's de Cos: If inflationary pressures persist, they are more likely to feed into wage negotiations

Joel Frank Independent Analyst

European Central Bank (ECB) Governing Council member Pablo Hernandez de Cos said on Monday that if inflationary pressures persist, they are likely to feed into wage negotiations and trigger second-round and indirect effects on inflation, reported Reuters. These second-round effects have not yet materialised, with the latest data on wage settlements pointing to employees bearing a considerable loss of purchasing power in recent quarters.

The natural rate of interest is relatively low in the euro area, de Cos continued, hovering around or slightly above 1.0% and this would suggest that, until these levels are reached, the ECB's monetary policy stance will continue to be expansionary, at least from a long-term perspective.

In order for us to adopt a gradual normalisation approach, it is essential that inflation expectations remain anchored at the 2.0% target, he added. Moreover, it is not optimal to pre-commit to any specific interest rate path, much less in the current uncertain context.

Author

Joel Frank

Independent Analyst

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018, specialising in the coverage of how developments in the global economy impact financial asset

EUR/USD trims gains, reclaims 1.1600 and beyond

Following an earlier drop to yearly lows around 1.1530, EUR/USD now manages to recoup part of the ground lost and reclaim the area above 1.1600 the figure in the latter part of the NA session on Tuesday. Meanwhile, the pair’s marked retracement comes in response to the unabate march norht in the US Dollar, always propped up by the intense flight-to-safety environment amid the deteriorating geopolitical landscape in the Middle East.

GBP/USD attacks 1.3300, refreshing three-month lows

GBP/USD is deep in the red near 1.3300, accelerating its downside to renew three-month lows in European trading on Tuesday. The ongoing escalation in the Iran war, combined with rising Oil prices, weighs negatively on the higher-yielding Pound Sterling as the US Dollar capitalizes on increased haven demand.

Gold bounces off lows, back above $5,100

Gold remains on the defensive, eroding part of the recent multi-day advance and managing to trade back above the $5,100 mark per troy ounce on Tuesday. The precious metal initially dropped just below the critical $5,000 threshold on the back of the persistent strength of the Greenback, higher US Treasury yields across the curve and investors' repricing of Fed rate cuts.