Euro: Nagel backs September hike path – BNY

BNY’s Geoff Yu reports that European Central Bank (ECB) Governing Council member Joachim Nagel has strongly signaled a September rate hike as Eurozone inflation stays above target and activity proves resilient. However, Nagel stresses a meeting-by-meeting approach beyond September given volatile energy prices and uncertainty. Yu also notes Eurozone natural gas at a three-year high, posing renewed inflation risks and complicating policy.

ECB signals but avoids firm guidance

"Even Bundesbank President Joachim Nagel, a hawk by any measure, has stressed the ECB’s “meeting-by-meeting” approach."

"ECB Governing Council member Joachim Nagel has strongly signaled that the central bank will raise rates next week, saying markets have a good understanding of the ECB’s reaction function; they are pricing in a greater than 95% probability of a September hike."

"Nagel was more cautious beyond September, stressing that volatile oil and gas prices, financial market instability and broader uncertainty make forward guidance difficult."

"He therefore backed retaining a meeting-by-meeting approach, suggesting that September tightening is highly likely but that subsequent moves will remain dependent on incoming inflation and growth data."

"Bond markets are adding restraint, but supply constraints cannot be ignored: Eurozone natural gas prices are at a three-year high, risking another difficult winter and renewed pressure on inflation expectations."