With such a macroeconomic backdrop, it is not surprising that | FxPro

With such a macroeconomic backdrop, it is not surprising that central bankers talk about the need to "take the pain" of policy tightening to suppress price increases and, more importantly, reverse inflation expectations.

The good news for the euro is that it responds well to the reassurances and threats from central bank officials. That was difficult for the BoJ to achieve earlier this year. At the same time, it is worth realising that verbal interventions in this situation can only buy a little time. Very soon, the ECB will confirm its intentions by effectively tightening monetary policy.

The fact is that not only energy prices are now at stake but also the credibility of the debt securities of smaller Eurozone countries. Last month, the ECB was forced to launch a sophisticated mechanism to hold down bond spreads of core and peripheral euro-region countries. The widening of spreads was another signal of a loss of confidence.