ECB Policymakers Warn of Prolonged Inflation Risks Amid Energy Crisis

The European Central Bank (ECB) has warned that inflation in the Eurozone will remain high due to the ongoing energy crisis. ECB President Christine Lagarde stated that the current energy shock is 'longer-lasting' and that the volatility and pressure on energy prices will continue, even though it poses a risk of lower growth.

On Monday, ECB Executive Board member Isabel Schnabel also warned of prolonged inflation risks, citing that 'refining capacities have reduced drastically and can't be rebuilt quickly'. This reinforces expectations of a more forceful policy stance. Meanwhile, the US Dollar's outperformance on expectations that the Federal Reserve will hike interest rates is hurting the EUR/USD major currency pair.

The EUR/USD trades lower at around 1.1535, holding below the 20-day Exponential Moving Average (EMA) at 1.1594 and keeping the near-term bias tilted lower. Traders are pricing in a 94% chance of a quarter-point rate hike in December, according to LSEG data.