ECB's Schnabel says euro area inflation outlook has not changed fundamentally

A top European Central Bank official said that the outlook for inflation in the single currency area had not improved.

The remarks from Isabel Schnabel, a member of the ECB's Governing Council and who also heads its market operations, appeared to signal that she would support a 50 basis point interest rate hike when policymakers next met.

"The concerns we had in July have not been alleviated [...] I do not think this outlook has changed fundamentally," Schnabel reportedly told Reuters.

Inflation might increase further in the short-term and would not vanish quickly, although it was expected to come down sharply in coming years, she added.

The central banker also said she did not rule out a technical recession, particularly if Moscow cut energy supplies further, "but inflationary pressures were unlikely to abate by themselves".

According to Reuters, at the time, financial markets were pricing in a 55 basis point rise in official short-term interest rates at the September GC meeting and a combined 118bp of hikes by year-end.

MUFG analyst Derek Halpenny however sounded a skeptical note nevertheless, Dow Jones Newswires reported, telling clients that the fundamental backdrop for the European single currency was negative and that it was expected to fall further.

In his opinion, concerns over risks to the bloc´s energy supply would determine just how far the ECB could hike rates, notwithstanding Schnable's remarks.

There is a "much greater risk" of the ECB underdelivering on rate rises versus market-pricing than for the Federal Reserve.

"The fundamental backdrop for EUR remains negative and short-term spreads dragging EUR/USD lower has further to run."