The rise in inflation expectations is a welcome development – Isabel Schnabel

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The member of the Governing Council of the ECB Isabel Schnabel said this Wednesday that rising inflation expectations is a welcome development, according to Reuters. The ECB is carefully monitoring developments in German wages, he added, noting that union demands are relatively high, but actual results are likely to be much lower.

Schnabel added that continuing to buy bonds, even at a low level, could signal to the markets that a rate hike is not imminent. Perhaps this is a lesson learned from looking at the Fed’s difficulties in convincing markets that the end of its QE reduction does not mean the start of rate hikes.

For reference, eurozone 5-year forward inflation swaps (that is, inflation expectations for the five years starting five years from now) rose again above 2.0% on Wednesday for the first time since late October, driven by rising European gas prices.

Market reaction

EUR / USD continues to suffer and is trading just above 1.1300, not far from the yearly lows at the 1.1260 zone.

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