The ECB hasn't said its last word. Gediminas Simkus, a member of the Governing Council of the European Central Bank, has just confirmed that at least one more rate hike is in the works. The message is clear: inflation remains too high, and Frankfurt continues to tighten the screws. 🔥
🔍 What’s going on?
Simkus leaves no room for ambiguity. In remarks reported by the financial press, the governor of the Central Bank of Lithuania believes that another hike in key interest rates is necessary to bring inflation back toward the 2% target. The European central bank therefore has no intention of easing up.
This stance contrasts with the hopes of some market participants who had anticipated a pause in the tightening cycle. Simkus is among the most hawkish members of the Governing Council, but his remarks reflect the prevailing consensus in Frankfurt: core inflation remains stubborn, and demand must continue to be reined in.
💡 Why does this matter?
For those trading the EUR/USD pair, this is a clear bullish signal for the euro. An ECB raising rates while the Fed may be nearing its peak widens the yield spread in favor of the eurozone. At the time of writing, EUR/USD is trading around 1.1610, and hawkish statements like Simkus’s typically push the pair higher.
On the macro front, credit conditions will remain tight in Europe. Companies borrowing in euros will continue to pay a high cost for financing, which slows investment and growth. For equity traders, keep an eye on cyclical sectors and European real estate stocks, which continue to suffer from high interest rates.
📊 Our View
We’re on the hawks’ side. The ECB is right not to let its guard down right now.
Inflation in the eurozone is showing resilience that fully justifies another rate hike. Wages are still rising rapidly in several member countries, and inflation expectations remain firmly anchored above 2%. Simkus is simply articulating what the data dictates: it’s better to act too aggressively than not aggressively enough and risk an inflationary resurgence in six months. In our view, the ECB will likely raise rates one last time by 25 basis points at one of its upcoming meetings, then take a wait-and-see approach. In France, the AMF is closely monitoring the impact on domestic bond markets, where yields continue to climb and are weighing on SME financing.
We expect the EUR/USD to continue rising in the short term as long as this hawkish narrative prevails. For French traders: favor long positions in the euro against the dollar, and remain vigilant regarding highly indebted European stocks, which will suffer from an even higher cost of capital.
✅ Key Takeaways
- Gediminas Simkus predicts at least one upcoming ECB rate hike
- European core inflation remains too high for a monetary policy pause
- EUR/USD currently at 1.1610, with bullish momentum supported by this hawkish rhetoric
- Cyclical sectors and European real estate continue to suffer from high interest rates
- The ECB is prioritizing the fight against inflation over stimulating growth
What do you think? Is the ECB right to keep raising rates despite the economic slowdown in the eurozone?
🔎 See also
To learn more, check out all our economic analyses on ActuTrading Economy 📈
Source: ECB, financial press
