ECB’s Lane: Prudent to hike again as inflation seen over 4% by year-end

The remarks from European Central Bank (ECB) Chief Economist Philip Lane released during the European trading session on Tuesday have indicated that he still sees more interest rate hikes in the near term.

Remarks

Europe's economic resilience is quite reassuring.

French fiscal problems need to be fixed in Paris.

Expect core, food inflation to quicken.

More to come in terms of peak inflation.

Prudent to hike in December if data don't shift.

Inflation likely “a little bit' over 4% at year-end.

Market reaction

There seems to be no immediate reaction in the Euro (EUR) after release of comments from ECB's Lane. As of writing, EUR/USD is up 0.2% to near 1.1250.

Lane leans hawkish as inflation risks keep Euro bulls alert

FXS Speechtracker shows a score of 7.6 versus a historic 6.3, signaling a stronger-than-usual impact as Lane highlights Europe’s “quite reassuring” resilience while stressing that French fiscal issues must be solved domestically in Paris. The emphasis on core and food inflation quickening, along with “more to come” on peak inflation and a likely year-end rate “a little bit” over 4%, tilts the message clearly hawkish.

Lane’s comment that it would be “prudent to hike in December if data don’t shift” reinforces expectations of further tightening, supporting the Euro on the margin. However, the insistence that fiscal repair is a national responsibility and the conditionality on incoming data temper the hawkish tone slightly, suggesting the Euro’s upside will depend on confirmation of renewed inflation pressures.