ECB officials signaled that a rate hike in June is likely unless a decline in energy costs alleviates inflationary pressures sooner. The central bank remains focused on price stability, with persistent energy prices posing a direct transmission risk through headline inflation and inflation expectations. This dynamic keeps the EUR and European sovereign yields, particularly in the periphery, sensitive to energy price volatility and forward guidance from ECB speakers. Markets are pricing in a higher probability of a June rate hike, with the deposit rate path being closely tied to incoming inflation data, especially energy components. Traders will watch the upcoming May CPI release and forward energy market curves for signals on whether the June hike remains on track.
ECB OFFICIALS PREDICT A RATE INCREASE IN JUNE UNLESS ENERGY COSTS DROP FIRST.
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