ECB President Christine Lagarde supported the euro, stating that the bank would not be able to slow rates anytime soon.
EURGBP: Daily Chart
EURGBP has found a low near the 0.8850 level and is now pushing for 0.89.
Lagarde told the ECB’s annual conference in Portugal that the eurozone had been hit by “overlapping inflationary shocks since the pandemic”. By raising its benchmark interest rate from minus 0.5% last year to 3.5%, she said the ECB had “made significant progress” in tackling inflation but “cannot declare victory yet”.
The ECB head said the first bout of inflation, in which supply shocks in energy and other commodity markets were passed on to consumers, was fading. However, a second phase driven by rising labour costs was now in place, with eurozone wages expected to rise 14% by 2025.
“We will face several years of rising nominal wages, with unit labour cost pressures exacerbated by subdued productivity growth,” she added.
Uncertainty over the impact this would have on prices was likely to prevent the ECB from being able to predict a peak in borrowing costs. However, a further quarter-point rise is “very likely” in July. “
“My intention is not to signal any future decisions but rather to frame the issues that monetary policy will face in the period ahead.”