ECB’s Nagel sees another hike as second-round risks mount

Bundesbank President Joachim Nagel said the European Central Bank may need to raise interest rates again as the risk of second-round effects from inflation builds, meaning price pressures could spread into wages and longer-term expectations. The transmission channel runs through the rate outlook: a hawkish signal from a senior policymaker pushes up expected euro-area policy rates, widening the yield differential against markets where rate expectations are easing and supporting the euro. Euro-area government bonds, particularly short-dated maturities that reprice most directly with policy expectations, are the most exposed, while rate-sensitive equities and periphery sovereign spreads face pressure if higher financing costs are seen weighing on growth. Traders will focus on the next euro-area flash HICP inflation reading and wage-tracker data, since a persistent upside surprise in core inflation or negotiated wages would validate the second-round concern and strengthen the case for further tightening.

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