With the European Central Bank's June monetary policy meeting just days away, several officials have continued to issue signals leaning towards a hawkish stance. European Central Bank Governing Council member Pierre Wunsch stated that even if the United States and Iran reach a peace agreement before the meeting, it would not be sufficient to completely alter the current rationale supporting an interest rate increase.
Wunsch noted that if a peace deal is ultimately reached between the US and Iran, such factors would certainly be included in the ECB's policy discussions. However, policymakers would still need to assess whether the agreement is sustainable and credible. He believes that short-term de-escalation alone is not enough to guarantee that energy prices and inflation risks have completely subsided.
International markets have been highly focused on the progress of negotiations between the United States and Iran recently. As the situation in the Middle East directly impacts the stability of the global energy supply chain, the market remains highly vigilant regarding the security of transport through the Strait of Hormuz. Market estimates indicate that approximately 20% of global seaborne crude oil shipments pass through the Strait of Hormuz, meaning any change in the situation could have a significant impact on international energy prices.
Earlier tensions in the Middle East had driven a sharp rise in international oil prices, sparking concerns about a resurgence of global inflation. Although some progress in negotiations has emerged recently, investors remain cautious about whether any agreement can be sustained in the long term. Wunsch stated that if the Middle East conflict remains unresolved by the time of the ECB meeting, the monetary policy discussion would be relatively straightforward, as the persistent risk to energy supplies implies that inflation pressures remain elevated.
However, he also pointed out that even if a US-Iran peace deal is reached, the internal discussion at the ECB might only become "slightly less easy," but it does not mean the reasons for raising rates disappear. On the contrary, the case for a hike remains, though the supporting arguments might be somewhat weakened. This statement has been interpreted by the market as a clear signal in support of a 25-basis-point rate increase. Analysts believe Wunsch's comments reflect that within the ECB, the focus on inflation risks still outweighs concerns about an economic slowdown.
The latest data shows the Eurozone's Harmonised Index of Consumer Prices (HICP) rose to 3.2% year-on-year in May, up from the previous 3.0% and in line with market expectations. Although inflation has retreated from earlier highs, it remains significantly above the ECB's long-term target. Meanwhile, energy price volatility has once again become a focal point for markets. As international crude oil prices have recently rebounded, there are concerns that imported inflation pressures could strengthen again, affecting price trends in the coming months.
Wunsch particularly emphasized that in the current environment, the ECB needs to show a clear stance to the market. He stated that policymakers cannot always rely on the market to complete the adjustment on its own but should convey policy signals through concrete actions. Analysts point out that these remarks reflect the ECB's current preference for taking preemptive measures to avoid a resurgence in inflation expectations. For the central bank, once inflation expectations begin to become unanchored, more substantial policy adjustments might be required later, thereby increasing economic costs.
In terms of market reaction, expectations for a June rate hike in European interest rate markets have intensified further. Most institutions expect the ECB to implement a 25-basis-point hike at its June 11 meeting to address persistent price pressures. In the foreign exchange market, hawkish rhetoric has provided some support for the euro. Although the US dollar has recently been supported by safe-haven demand and strong US economic data, expectations for ECB rate hikes help narrow the monetary policy gap between Europe and the US, thereby limiting the euro's downside.
From a technical perspective, the euro overall maintains a consolidating, slightly strong pattern. On the daily chart, the main moving averages are maintaining a sideways arrangement, and the currency remains near the lower support of a converging range. If the ECB releases further hawkish signals, the euro could gain more buying support. The 4-hour chart shows the market is awaiting the outcome of the ECB meeting and subsequent economic data for direction. In the short term, changes in interest rate expectations will remain the core factor influencing the euro's movement.
Wunsch's latest remarks indicate that the ECB remains highly vigilant regarding inflation risks. Even if a US-Iran peace deal is reached and leads to a decline in energy prices, support within the ECB for raising interest rates remains strong. Based on the current inflation level and official statements, a 25-basis-point hike in June has become the market's mainstream expectation. Going forward, investors will need to closely monitor changes in energy prices, Eurozone inflation data, and ECB policy statements to gauge the subsequent monetary policy path.
Comments