ECB's Sleijpen: 2022 Inflation Repeat Less Likely, Not Ruled Out

European Central Bank policymaker Olaf Sleijpen said Wednesday that a repeat of the inflation surge that drove interest rates to their highest in decades looks less likely now than in 2022. He added that the scenario cannot be entirely excluded.

The speech, delivered in Amsterdam, places Sleijpen in line with other ECB officials who have warned against declaring victory too soon. Markets have been pricing a rate cut as soon as September, with some traders betting on a second move before year-end. Sleijpen's caution suggests the Governing Council is not yet ready to lock in that timeline, even as inflation has fallen from its peak.

The 2022 shock was fueled by energy prices and supply-chain bottlenecks after Russia's invasion of Ukraine. Those drivers have faded. Euro-area inflation now hovers around 2.5%, still above the ECB's target. Sleijpen pointed to services inflation and wage growth as areas that require continued monitoring. His message: the central bank needs to see sustained evidence that price pressures are receding across all components.

For the euro, the implications are direct. A slower pace of rate normalization would keep the rate differential with the Federal Reserve narrower than markets had anticipated. That dynamic has supported EUR/USD in recent weeks, and Sleijpen's remarks reinforce the view that any ECB easing will be incremental, not aggressive. A more dovish tilt would have likely weakened the currency.

Short-dated European government bond yields edged lower after the speech, a sign that traders saw the remarks as broadly in line with existing expectations. Had Sleijpen signaled a more imminent cut, yields would have fallen further. The lack of a strong move suggests the market was already pricing in caution.

Sleijpen's comments come as the ECB prepares its next set of staff projections, due at the September policy meeting. Those numbers will be a critical input for the rate decision. Until then, the central bank remains in wait-and-see mode, with inflation prints and wage data as the key guideposts.

What could shift the balance? A fresh energy price spike or stronger-than-expected wage settlements would make Sleijpen's warning look prescient, pushing rate cuts further out. On the other side, a sharp economic slowdown would bring September back into play regardless of inflation stickiness. The ECB's next meeting is six weeks away. In that time, data will do the talking.

Forex market analysis shows how rate expectations feed into currency positioning. For traders, the next test will be whether other ECB speakers strike the same tone or offer diverging views in the weeks ahead.