On the eve of the Federal Reserve's September meeting, Europe's top central banker delivered a sharp reminder to markets that the world's central banks are moving away from easy policies.
European Central Bank President Mario Draghi said in a speech Monday the "stable profile" of inflation "conceals a slowing contribution from the non-core components of the general index and a relatively vigorous pickup in underlying inflation." Draghi's inflation comment was viewed as hawkish, even though he repeated that the ECB does not intend to raise interest rates through next summer.
The euro rose, European stocks fell and European bond yields climbed, as traders took the comment to mean that inflation is stronger than expected, and that could mean rate hikes sooner. U.S. Treasury yields temporarily moved higher with European rates, as the German 10-year bund yield reached 0.50 percent.
"I think he's referring to the forecast going forward, but I think this is part of a campaign," said Marc Chandler, Bannockburn Global Forex's chief market strategist. He noted that ECB policymaker Ewald Nowotny encouraged the ECB to speed up its exit from negative rate policies. "There seems to be a more hawkish slant on things."
Two other ECB officials, Benoit Coeure and Peter Praet, said recently that the ECB will need to begin clarifying next year the likely path of interest rates, beyond the first hike.