EUR: ECB tightening risks and weak confidence – BNY

BNY’s Head of Markets Macro Strategy Bob Savage notes that the central bank of Germany, Bundesbank President Joachim Nagel has opened the door to an April European Central Bank (ECB) rate hike if Middle East‑driven energy prices elevate inflation risks. However, with Euro area M1 and M3 monetary aggregates pointing to moderating liquidity and weaker monetary momentum, Euro (EUR) remains caught between hawkish central bank rhetoric and softening fundamental data.

Nagel hawkish as data softens

"The surge in oil and gas prices, alongside disruptions linked to the Strait of Hormuz closure, is increasing upside risks to inflation in the energy-importing euro area."

"Bundesbank President Joachim Nagel said in a Reuters interview that the ECB could raise rates as soon as April, describing a hike as “an option” if rising energy prices from the Middle East conflict increase inflation risks."

"He noted policymakers would have sufficient data by the April 29-30 meeting to decide whether to act or wait, adding that the ECB should not dismiss tightening prematurely."

"Euro area M3 growth slowed to 3.0% y/y in February from 3.2%, while M1 growth slipped to 4.8% from 5.2%, signaling weaker monetary momentum."

"Overall, monetary dynamics point to moderating liquidity conditions alongside steady but subdued credit growth across the euro area economy. It remains to be seen how the conflict will impact credit behavior."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)