The market is still pricing in a rise in ECB rates to +0.87% by year end but given natural gas and electricity costs, I'll take the 'under' on that. The US dollar's newfound weakness is keeping the euro above parity at the moment and it's all relative but there are headwinds for the euro coming.
So what's the line in the sand? At 85-cents and with an inflation problem, that would keep the ECB on its toes.
Other comments:
- Activating TPI will depend on whether turmoil in Italian markets reflects policy and macro fundamentals
- We have to avoid too strong messages (on rates)
- Weak data gives us responsibility to act in a prudent way but progressively normalizing stance
I find it bizarre that the ECB thinks it can accurately judge what Italian spreads should be.
