(Kitco News) - After the historic rate hike this week, there has been lots of ECB talk today. The ECB hiked by 75 bps moving its primary refinancing rate to 1.25%, its highest level since 2011. In Europe and most of the world, inflation has been running wild and with the U.S. dollar running rampant it doesn't look like any sign of this easing any time soon either. Elsewhere the higher energy prices are taking their toll on CPI with the majority of the increase coming from the energy sector.
Inflation was the focus of the comments this morning from the ECB members. ECB's Knot kicked off some comments saying that the rate hikes will continue until inflation is under control. Looking ahead about how this could be addressed Vasle said that the inflation outlook will decide the size of future hikes and the goal is to stabilize inflation at the 2% mid-term goal.
ECB's Lagarde went on the offensive in her comments saying that the ECB is ready to provide liquidity to banks not energy firms. She then said that fiscal authorities should provide support to energy firms. She assured the markets that the ECB will not let price expectations get out of control although some would say they have done already. Lagarde did continue to say that inflation is still a major concern and that a big hike was needed to prevent broader inflation.
In regards to a timeframe when the inflation rate could return to more "normal" levels the ECB members have projected that 2024 could be a decent target. ECB's Kazmir said that the CPI rate could still be above target in 2023 and 2024 but it could ease in the latter end of that projection.
In reaction to these comments, EUR/USD has pushed above parity now. Today the pair is trading at 1.0066, and the next major resistance is at 1.0355 and this was the wave low on the daily chart from mid-May and it does seem like there could be enough momentum to take the price to test the zone. Later in the session, we hear from some Fed members. The Fed is well ahead of the ECB in terms of the rate hiking cycle but it is interesting to see how hawkish the comments are as it may neutralize the recent move higher in EUR/USD.
