The European Central Bank got an unwelcome surprise a day before its interest-rate decision, after the Eurostat statistics agency reported the hottest inflation on record.
Eurostat said consumer prices jumped 5.1% from a year earlier in January — a notch ahead of the 5% rise for December, and well ahead of the 4.4% expected by economists. Core inflation did cool to 2.3% from 2.6%.
Vitor Constancio, the former vice president of the ECB, tweeted the data shouldn’t change the central bank’s approach and expectations. But the euro EURUSD, +0.44% did edge higher after the move, and the yield on the 10-year German bund TMBMKDE-10Y, 0.040% touched the highest level since April 2019.
“[ECB President] Christine Lagarde will probably discard the perspective of a rate hike in 2022 but will not push back that perspective for 2023. In a nutshell, no rush for the ECB : time should be on its side. From a macroeconomic standpoint, the end game is probably more certain than the short term path,” said Vincent Manuel, global chief investment officer of Induez Wealth Management.
There’s less uncertainty heading into Thursday’s Bank of England meeting, where expectations are for a quarter-point rate hike to 0.5%. The question for markets revolves around the commentary for hikes after that. Gavin Friend, senior market strategist at National Australia Bank, expects the third hike to come in August and for rates to remain at 0.75% through the end of the year, which is less than the market pricing of 1.25%.
The pound GBPUSD, +0.35% rose to $1.3563 from $1.3522.