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The ECB has won the battle against inflationInflation is not too low in FranceFrench inflation undershooting on temporary factorsDecision to leave early is personalVilleroy is the governor of the French central bank and he’s generally considered a dove, although he changed his stance to neutral several months ago like most other ECB policymakers.The fact that he’s downplaying the below-target inflation in France is a strong confirmation of his neutral stance and the overall ECB’s wait-and-see approach to interest rates policy.The ECB has been the most successful central bank in bringing inflation down to target without causing pain in the economy. In fact, core inflation is now just a bit above the 2% target and the unemployment rate remains at record lows. Moreover, given the prior rate cuts and increased fiscal spending, the economic activity has been picking up steadily.Villeroy recently announced that he will be stepping down in June for personal reasons, over a year earlier before his term ends, but that won’t affect the ECB policy of course.
This article was written by Giuseppe Dellamotta at investinglive.com.
đź’ˇ DMK Insight
The ECB’s perceived victory over inflation could shift market sentiment, but French inflation’s recent dip raises questions. While the ECB celebrates its inflation control, the nuances in French inflation suggest that not all is well. Temporary factors may be masking underlying issues, which could lead to volatility in euro-denominated assets. Traders should keep an eye on the broader European economic indicators, as a divergence in inflation rates could impact monetary policy decisions. If inflation in France continues to undershoot expectations, it might prompt the ECB to reconsider its hawkish stance, affecting euro pairs and bond markets. Here’s the kicker: Villeroy’s shift from a dove to a neutral stance indicates a cautious approach, but it also leaves room for potential surprises. Watch for any comments from him or other ECB officials that could signal a change in strategy. Keep an eye on the EUR/USD pair, especially around key support and resistance levels, as shifts in sentiment could lead to significant price movements in the near term.
đź“® Takeaway
Monitor EUR/USD closely; any shift in ECB’s stance could trigger volatility, especially if French inflation trends worsen.
