BRIEF: Hawkish Speeches Fuel Expectations Of Bigger ECB Hike

The prospects of the ECB hitting the rate-hike accelerator again when it next meets on Sept. 8 have risen after hawkish comments from policymaker heavyweights at the Jackson Hole symposium over the weekend and ahead of Wednesday's release of eurozone August CPI data, with analysts expecting a further increase in the headline rate to over 9%.

Executive Board member Isabel Schnabel on Saturday reinforced her view that the ECB should focus on actual price outcomes over projections to avoid embedding high inflation. Speaking at Jackson Hole the same day, Bank of France Governor Francois Villeroy de Galhau called for another significant rate hike in September, hitting a 'neutral level' which he has estimated to be between 1% and 2% by the end of the year.

While neither policymaker explicitly called for a 75-basis-point hike on Sept 8, their remarks were seen as adding fuel to media reports of a burgeoning group on the Governing Council wanting faster tightening, with 10-year bund yields rising 13 bp this morning and 10-year Italian BTPs up 14 bp - notably with no widening in peripheral bond spreads. The euro slipped against continuing dollar gains but not as much as other majors such as sterling and the yen.