Pound declines amid easing inflation concerns

ECB's Villeroy de Galhau asserts oil price spikes won't dictate automatic policy changes, while SNB's Jordan emphasizes the need for fiscal discipline and BoE's Ramsden comments prompt a sharp sell-off in the Pound.

By Ahmed Azzam | @3zzamous | 22 April 2024

Market close
  • ECB's Villeroy de Galhau clarifies oil price spikes won't automatically shift monetary policy.

  • SNB's Thomas Jordan highlights sluggish growth and high debt levels as major economic threats.

  • BoE's Ramsden's comments on easing inflation worries trigger Pound's drop.

Pound suffers as inflation concerns ease

The British Pound experienced a widespread sell-off today, continuing its downward trajectory following remarks last Friday by Bank of England (BoE) Deputy Governor Dave Ramsden. Ramsden noted his reduced concerns about inflation and anticipated that forthcoming data would show a significant slowdown in April. He specifically stated that UK inflation trends are expected to align more closely with those in the Eurozone, rather than with the US, which influenced market sentiments heavily.

ECB's stance on oil price surges

European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau, in a discussion with French financial newspaper Les Echos, emphasized that recent spikes in oil prices due to conflicts in the Middle East would not automatically compel the ECB to alter its monetary policy stance. Villeroy clarified that the bank would thoroughly evaluate whether these price surges have a significant impact on core inflation and inflation expectations before making any decisions.

Villeroy reaffirmed the ECB's readiness to adjust interest rates promptly if necessary. "No — unless there is a surprise, we must not wait too much," he stated, highlighting the ECB's commitment to proactive fiscal management. "Once we are sufficiently confident that we will achieve the 2% inflation target by next year, it is our duty to minimize the economic and employment costs," he added, indicating a potential initial rate cut as early as June.

SNB highlights economic challenges

In a separate interview with Swiss broadcaster SRF, Swiss National Bank (SNB) Chairman Thomas Jordan addressed the challenges of sluggish economic growth and the urgency for structural reforms. He pointed out the necessity for enhancing productivity to stimulate economic expansion globally. Jordan also drew attention to the high levels of debt and significant deficits many countries are facing, which he considers unsustainable over the long term.

Jordan stressed the critical need to correct these fiscal disparities to ensure future economic stability. He cautioned against the improper use of monetary policy to fund state debts, warning that such practices could have severe repercussions. "It is very important that monetary policy continues to focus on price stability and not be diverted to debt financing; otherwise, the outcome will be unfavorable," Jordan warned.