During the Asian session on Wednesday, the euro traded against the US dollar around 1.1638, showing a slight increase from the previous day's close.
Although the currency's rebound has been limited, recent statements from European Central Bank officials have provided potential underlying support for the euro.
François Villeroy de Galhau, Governor of the Banque de France and a key ECB policymaker, stated in a media interview on Tuesday that the ECB "will take the necessary measures" to bring inflation back to its target.
Inflation in the eurozone has surged to 3%, with the effects of the Iran conflict becoming apparent. Just before the outbreak of the conflict, inflation had fallen below the ECB's 2% target. Market expectations are widespread that the ECB will raise interest rates at its next meeting.
Energy shocks have heightened inflation concerns, prompting the ECB to commit to action. Villeroy emphasized that the ECB, as an independent central bank, will "take all necessary measures to return inflation to its target." He added, "In the medium term, this means taking the necessary steps to bring inflation back to 2%. The markets can be reassured of this."
The sharp rise in oil prices, driven by the effective closure of the Strait of Hormuz, has intensified fears that an energy crisis could reignite inflation across multiple markets. Villeroy acknowledged the short-term impact of the Middle East conflict, noting that energy prices have exerted significant upward pressure. However, he stressed that the ECB's responsibility—and even commitment—is to prevent second-round effects from materializing.
Inflation data and market reactions show that eurozone inflation, which had dropped to 1.9% before the conflict, jumped to 3% in April from 2.6% in March. As a major net energy importer, Europe is particularly vulnerable to energy shocks. Soaring prices for gasoline, diesel, and aviation fuel in recent months have forced some governments to intervene and raised warnings of potential summer flight cancellations.
Villeroy noted concerns about inflation spilling over into financial markets, particularly evident in government bond markets. Global government bonds have been volatile since the conflict began. The yield on Germany's 10-year bond, the eurozone benchmark, has risen by approximately 32 basis points, with other eurozone bonds experiencing even greater fluctuations. Rising yields reflect investor expectations of higher inflation and more hawkish monetary policies.
Second-round effects have not yet materialized, but the ECB has pledged further action if necessary. Villeroy explained that the ECB kept its key interest rate steady at 2% last month due to insufficient data on the risks of second-round inflation effects. This data includes core inflation excluding energy and food, inflation expectations of households and businesses, and wage growth. "Data so far suggest this is primarily a first-round effect, but we should remain highly vigilant about possible second-round effects. Therefore, there is no doubt we will take all necessary actions," he stated.
Markets widely anticipate an ECB rate hike at its June meeting, with most traders expecting at least a 50-basis-point increase by year-end.
Other ECB officials have also issued warnings. In late March, ECB President Christine Lagarde indicated that the central bank was prepared to raise rates even if the expected inflation surge proved temporary. On Sunday, Lagarde revealed that the ECB is likely to revise its inflation forecasts upward at its June policy meeting. She noted that the March forecast of 2.6% inflation for this year "could be adjusted" given new developments since its release.
When asked whether an upward revision to inflation forecasts would prompt a rate hike announcement on June 11, Lagarde did not provide a specific response. She emphasized the need to assess all available data, analyze economic trends in the coming quarters, and evaluate the necessity and medium-term impact of policy measures, with the ECB's medium-term inflation target remaining 2%.
Economists and market participants generally expect the ECB to raise rates by 25 basis points. Several central bank officials have indicated that a rate hike is likely if a long-term peace agreement between the US and Iran is not reached.
Joachim Nagel, President of the Bundesbank, stated last month that oil price volatility has placed the ECB "between our baseline and adverse scenarios." Meanwhile, Mārtiņš Kazāks, Governor of the Latvian Central Bank, warned of potential "layered" economic shocks.
In summary, recent frequent statements from ECB officials have clearly committed to taking necessary measures to curb inflation. Against the backdrop of soaring energy prices and April inflation reaching 3%, markets widely expect the ECB to raise rates at its June meeting.
Although inflation currently reflects primarily first-round effects, the ECB remains highly vigilant about second-round effects and is prepared to take further action if needed. Volatility in eurozone bond markets reflects investor expectations of higher inflation and more hawkish policies.
In the short term, the ECB's rate hike path is largely determined, but the scale of subsequent actions will depend on whether inflation spreads to wages and core prices.
From a technical perspective, the euro is trading around 1.1635 against the US dollar on the daily chart, consolidating after a recent low rebound, with multiple technical indicators showing neutral to weak signals.
In terms of moving averages, MA5 (1.1624) and MA10 (1.1630) are slightly below the current price, while MA20 (1.1681), MA50 (1.1662), and MA100 (1.1697) are above it, forming short-term resistance. This configuration, with the price near or below major moving averages, indicates that the euro faces clear short-term pressure and is in a weak consolidation phase.
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