ECB's Schnabel calls for more rate hikes despite Hormuz relief
ECB board member Isabel Schnabel argues the central bank must continue raising rates as the Hormuz ceasefire will only gradually ease energy supply pressures, challenging market expectations of a near-term pivot.
European Central Bank board member Isabel Schnabel has pushed back against market expectations of a near-term pause in the tightening cycle, arguing that the recent ceasefire in the Strait of Hormuz does not eliminate the need for further rate hikes.
In remarks over the weekend, Schnabel said the Hormuz truce will only gradually ease energy supply bottlenecks, and that higher energy costs are already feeding into supply chains and manufacturing pass-through. She warned that the strait will reopen only slowly, meaning inflation pressures from the energy side will persist. The ECB resumed hiking earlier this month after a multi-year pause, and Schnabel's comments suggest the central bank is not treating the Hormuz development as an inflation off-ramp.
For currency traders, the hawkish stance reinforces the interest-rate differential advantage of the euro against currencies whose central banks are closer to ending their tightening cycles. The euro has already rallied on the back of the ECB's resumption, and further rate expectations could keep the single currency supported. NowPrice's real-time fx quotes show EUR/USD trading near recent highs as markets reassess the rate path. The immediate test for Schnabel's thesis will be euro-area inflation data due this week, expected to print at 3.0% with core holding at 2.6%. If inflation surprises to the upside, markets may price in additional ECB tightening, further boosting the euro. Conversely, a softer print could fuel doubts about the need for more hikes, potentially weighing on the common currency. Traders should also watch for any further comments from ECB officials and the evolution of energy prices, as the Hormuz situation remains fluid.