The European Central Bank (ECB) recently published its indicator of euro area negotiated wages for the fourth quarter of 2024. The data showed a slowdown in wage growth, providing some relief for policymakers as they work to curb inflation and support economic growth. In the previous quarter, the index jumped to 5.4% year-on-year, primarily due to one-off payments.
However, these figures were not significantly considered by the ECB, whose target is around 3%. According to ING’s FX analyst Francesco Pesole, the ECB is unlikely to change its stance based on the latest negotiated wage data. Pesole believes that any positive reaction from the euro may be reversed once the ECB reiterates its dovish commitment.
“We believe the ECB is unlikely to change its stance based on today’s negotiated wage data.
Ecb welcomes slower wage growth
Any positive reaction from the euro may be reversed once the ECB reiterates its dovish commitment,” said Pesole.
Pesole added that EUR/USD could retest the 1.050 mark on the back of USD weakness today but maintained a bearish outlook on the pair, targeting a return to 1.030 in the near term. The ECB has recently indicated plans to continue easing monetary policy, with money markets pricing in at least two interest rate cuts by the end of December. It may take longer for a slowdown in wage growth to show in the negotiated wage series, but the ECB welcomes slower wage growth in higher-frequency metrics.
For the full year, wage growth edged up to 4.48% from 4.44% in 2023, marking the highest annual increase since 1993. Despite this, the recent slowdown in the fourth quarter suggests that the ECB’s efforts to manage inflation and support economic growth may be having an impact. Overall, today’s wage data is not expected to significantly impact the ECB’s policies, and the euro may face continued volatility in the near future as policymakers navigate the complex economic landscape.