BNY’s report highlights that the Eurozone’s labor market deterioration has slowed, but conditions are not weak enough for the ECB to consider easing. The report notes that Euro strength is tightening financial conditions, and risks to the export sector are increasing due to exchange rate pressures. The analysis also emphasizes the challenges posed by fiscal impulses and potential constraints on government spending.
Eurozone labor market and inflation insights
“The downside surprises in French and Dutch January preliminary inflation prints will likely raise more questions for the European Central Bank (ECB) Governing Council regarding its policy assessment. On current evidence, monetary policy is no longer ‘in a good place,’ nor are conditions weak enough to merit an additional pivot.”
“Given the risk of periodic bouts of volatility in U.S. trade relations, some structural weakness in Eurozone growth expectations will likely persist. But this is already consistent with developments in the manufacturing sector, which continues to contract in terms of output and labor.”
“Challenges for the export sector are already present in the policy assessment. Risks to the downside in prices arising from the exchange rate have increased – as flagged in recent commentary – but services demand is far less sensitive to exchange rates.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/eur-price-path-remains-driven-by-services-and-wages-bny-202602050751
