Piero Cipollone: The new energy shock: economic scenarios and policy implications
At a Glance
The desk argues that the ongoing energy crisis, exacerbated by geopolitical tensions, poses significant risks to the euro area's economic stability and inflation targets. Per the full note source, the ECB's Piero Cipollone highlights that the recent surge in energy prices, driven by the war in Iran and the closure of the Hormuz Strait, could undermine the euro area's recovery and inflation trajectory. Current inflation rates have already risen to 3%, with energy prices contributing a substantial 10.9% increase. Ahead of the upcoming CPI data release on June 2, traders should be vigilant about how these developments may influence ECB policy decisions.
Full Analysis
What the desk is arguing
The desk posits that the current energy shock will challenge the ECB's ability to maintain price stability and economic growth in the euro area. Per the full note source, the geopolitical tensions stemming from the war in Iran and the disruption of the Hormuz Strait have led to a significant spike in energy prices, which could derail the recent positive economic momentum.
Supporting this view, inflation has risen to 3% as of April, largely due to a 10.9% increase in energy prices. This inflationary pressure, coupled with supply chain disruptions, suggests that the ECB may need to recalibrate its monetary policy approach to address these emerging risks.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk's outlook aligns closely with jpmorgan, which anticipates a stronger EUR/USD, while diverging from bofa, which is more bearish. Given the current dynamics, our view sits at the upper end of the consensus range.
How other firms see it
Several firms, including jpmorgan and goldman, are aligned with the desk's view, anticipating that the energy crisis will necessitate a more cautious ECB stance. Conversely, bofa holds a contrary position, expecting a weaker euro amid persistent inflationary pressures.
Traders should monitor EUR/USD closely, particularly in relation to the upcoming ECB policy decisions and inflation data, as these will likely influence market sentiment and positioning.
What the calendar says
With the CPI data release on June 2, traders should prepare for potential volatility in the euro as the market reacts to inflation figures that may reflect the impact of the ongoing energy crisis.
What changed vs prior statement
- 01ECB wage tracker shows negotiated wage growth stable at 2.6% for 2026, with mechanical downward effects from prior one-off payments dissipating throughout year.
- 02New energy shock from Iran-Middle East conflict disrupts eurozone's recent economic resilience; oil/gas prices surge, creating medium-term inflation and growth risks.
- 03ECB developing economic scenarios to assess geopolitical impacts in real-time, balancing monetary policy's inflation target with fiscal support for economic activity.
From the original
SPEECH The new energy shock: economic scenarios and policy implications Keynote speech by Piero Cipollone, Member of the Executive Board of the ECB, at the 2026 Sustainable Development Festival Milan, 6 May 2026 Thank you for the opportunity to speak at the Sustainable Development Festival. Today, I will argue that the current energy crisis serves as a powerful reminder that Europe’s path to robust and stable economic growth is only as viable as it is sustainable. We should care about…
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