FX.co ★ Some European politicians not expect end of high rates cycle

According to executive board member Isabel Schnabel, the European Central Bank must do more to bring inflation back to the 2% target, even though the effect of the regulator's actions may be delayed. There have been a lot of talks lately about whether the ECB has done enough to take a wait-and-see attitude by this autumn. At least, that is what traders in the futures market are predicting.

There are a lot of European policymakers who have been setting the stage for this lately, but as you can see, there are also those who believe that there is more to come. After the 375 basis point rate hike cycle that began last summer, even these actions may not be enough to beat the high core inflation that was raging across the region, Schnabel said. Future quarter-point moves would allow borrowing costs to reach a fairly restrictive level, she added.

Inflation, especially core inflation, remained too high, and we would raise interest rates with full determination until there are signs that core inflation also declined on a sustainable basis, the European policymaker said.

Notably, such statements came less than a week after the ECB slowed the pace of its unprecedented rate hike. The European regulator decided to keep up with the Federal Reserve, which left the door open for a pause in its own monetary policy tightening cycle.

Schnabel also noted that ECB President Christine Lagarde was absolutely right when she made it clear that a slowdown in rate hikes was not a sign that we would stop raising rates anytime soon. The German official is one of the most hawkish voices of the ECB. In March, she insisted on tougher wording, refusing to rule out a 50 basis points step in the run-up to the latest decision of May 4.

Other European officials have been more restrained in their statements. The president of the Bundesbank, Joachim Nagel, said that although the tightening process would not end in July, as many economists expected, some work has been done to combat high inflation, all that remained was to wait and assess the economic consequences that aggressive policies can lead to.

As for the EUR/USD pair, bulls have fewer chances to continue the growth. To do so, they need to keep the price above 1.0940 and take control of 1.0970 and 1.1000. This will allow them to push the pair above 1.1030. From this level, it is possible to climb to 1.1060, but it will be quite difficult without robust fundamental statistics in the US. In case of a decline in the trading instrument, big buyers may take action near 1.0940. If they do not appear in the market, it would be better to wait for the price to reach the low of 1.0910. One may also open long positions from 1.0870.

As for the GBP/USD pair, bulls continue to control the market. For further growth of the pair, it is necessary to drag the price to 1.2630. If this level is broken through, it will strengthen the hope for recovery to the area of 1.2665, after which it will be possible to talk about a sharper rally of the British pound to the area of 1.2710. In case the pair falls, bears may try to take control over 1.2600. If they succeed, the breakdown of this range will strike a blow to the bulls' positions and will push the GBP/USD pair to the low of 1.2560 with the prospect of reaching 1.2520.