The member of the Governing Council of the European Central Bank (ECB), Klaas Knot said on Tuesday that a 50 basis point rate hike should not be ruled out. EUR/USD jumped higher as an initial reaction to these comments, Commerzbank economists report.
Knot’s comments support the euro
Klaas Knot yesterday introduced the possibility of steps of 50 basis points. By making this comment, Knot opens up a new line of attack for the ECB hawks. The publication of each high inflation data would reinforce this opinion and, at the very least, would make such a step seem slightly more likely.”
“The forex market isn’t that interested in how much a central bank might raise interest rates at the next meeting or the next. What is decisive for the value of a currency is whether a central bank reacts sensitively to inflation..”
“The ECB initially assumed that inflation was ‘transient’ and did nothing. And now he is still waiting for regulatory considerations. In view of the rapid acceleration of inflation, that constitutes a weak reactivity. Knot’s comments clearly differ of that. And that is why the euro has been able to benefit from these comments, although no one has seen a reason to raise the ECB’s forecasts for the immediate future as a result of them.”
Source: Fx Street