European Central Bank (ECB) policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March. According to him, the current pace of hikes could continue into May if underlying inflation does not materially abate. “Once we see a clear, decisive turn in underlying inflation dynamics, I expect the ECB to move to smaller steps.”
Knot mentioned that inflation appears to have peaked. The sharp decrease in energy prices seen over the last months could bring down headline inflation even faster than what the ECB is projecting, the policymaker added. He does not see a recession in the winter and pointed out that the slowdown in economic growth seems “even more shallow, short-lived than expected”.
Market reaction
Trades have all their attention on the effects of Fed Chair Powell’s remarks. The EUR/USD is sharply lower trading at 1.0565, while EUR/GBP is at two-week highs above 0.8900.
