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I think the inflation risk is lower this time aroundI think that we were late to act in 2021 and 2022One reason was that we had too much of an academic discussion about the drivers of inflationAcademic discussions are good at university and in academic fora but in central banking, you have to take decisionsWe have to wait before deciding on the next interest rate moveNeed more clarity about the conflict in IranMy impression is that the data on growth over the coming weeks are not going to be goodEnergy shock is usually reflected in inflation indicators much more rapidly than in growth indicatorsThat’s why I would call for prudence, we need additional clarity with respect to the conflictI have never tried to pre-empt the rate decisionLet’s see the data over the coming weeks, let’s see the projections, let’s see what happens with the conflictMarkets’ response has been quite calm and that is a positive thingA big repricing in asset markets would have been very detrimental, amplifying the impact of the energy shockFiscal space is quite limited in the euro area at a time when we need to increase defence spendingOverlooking this risk would be a mistakeFull transcriptAs a reminder, de Guindos will be seeing his term end at the end of this month. So, he can be a bit more bold with his commentary as is the case with all policymakers when they are set to depart from the central bank.So far, he’s not saying too much though but is preaching patience and being more prudent. But in the bigger picture, I’m sure he knows very well too that the ECB cannot sit by idly for too long amid the shock to the inflation outlook.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Inflation concerns are shifting, and here’s why that matters for traders: the sentiment around inflation risk appears to be easing, particularly when compared to the aggressive rate hikes of 2021 and 2022. Central banks may have been too slow to respond back then, but now there’s a growing belief that the current inflationary pressures could be more manageable. This shift can influence monetary policy decisions, which are crucial for forex and crypto markets alike. Traders should keep an eye on how this evolving narrative affects interest rate expectations. If central banks signal a more dovish stance, we could see a weakening of the dollar, which often leads to bullish moves in commodities and cryptocurrencies. Conversely, if inflation data surprises to the upside, expect volatility as markets reassess their positions. Watch for key economic indicators like CPI and PPI releases in the coming weeks, as they could provide critical insights into the inflation trajectory and central bank responses. The flip side is that if inflation remains stubbornly high, we could see a return to aggressive tightening, which would likely pressure risk assets. So, stay alert to these economic signals and adjust your strategies accordingly.
📮 Takeaway
Watch upcoming CPI and PPI data closely; a dovish shift in central bank policy could weaken the dollar and boost crypto and commodity prices.
