Isabel Schnabel, a member of the ECB Executive Board, considered the Eurozone inflation data as a pleasant surprise.

The euro fell against all other major currencies during the New York session on Tuesday (December 5). EUR/USD fell by more than 0.4%, and EUR/GBP and EUR/JPY also slumped. This is because market participants received confirmation that the direction of the European Central Bank's (ECB) upcoming policy will be more relaxed.

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Isabel Schnabel, a member of the ECB Executive Board, told ECB in-house reporters that the latest Eurozone inflation data was a "pleasant surprise". Moreover, she revealed that further rate hikes were "rather unlikely".

When the interviewer asked further, "Did I read it correctly that you do not rule out a rate cut before the middle of the year?" Schnabel did not deny it. She argued that the ECB remains "data-dependent".

Schnabel emphasized that the ECB's loose monetary policy has had an impact. Inflationary pressures have eased and will soon reach the 2% target on a sustainable basis before 2025. Going forward, the ECB will monitor services inflation and wage agreement data in particular to ensure the continuation of this disinflationary trend.

Schnabel's statement is worth highlighting, as she was previously known as a very hawkish figure. Until about two weeks ago, she was still emphasizing to the mass media the importance of maintaining high-interest rates.

"There is now 140bp of easing priced in for 2024, with 7bp of cuts added overnight. The main catalyst for the rates move was rhetoric from the ECB's Isabel Schnabel. Ordinarily hawkish, she said further rate hikes are unlikely and, rather than ruling out rate cuts in H1 24, she said policymakers should be cautious about signalling policy that far out," says Daragh Maher, Head of FX Strategy at HSBC in New York.

The ECB official's statement puts the euro in a weaker position than the US dollar. Fed Chairman Jerome Powell last week only signaled the end of the rate hike cycle, and has not been ready to acknowledge the rate cut speculation that is running wild.