ECB Governing Council Member Isabel Schnabel said that the rise in inflation expectations is a welcome development on Wednesday, according to Reuters. The ECB is carefully monitoring German wage developments, she added, noting that union demands are relatively high but actual outcomes are likely to be much lower.
Schnabel added that continuing to buy bonds, even at a low level, could signal to markets that a rate hike is not imminent. Perhaps this is a lesson learned by observing the Fed's struggles to convince markets that the ending of its QE taper does not mean the start of rate hikes.
For reference, Eurozone 5-year 5-year forward inflation swaps (i.e. inflation expectations for the five years starting in five years time) rose back above 2.0% on Wednesday for the first time since late October, boosted by rising European gas prices.
Market Reaction
EUR/USD continues to struggle and is trading just above 1.1300, not far above annual lows in the 1.1260s.
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