ECB Executive Board member Isabel Schnabel warned that inflation could prove more stubborn than the bank’s latest forecasts. She flagged a risk that price pressures may rise despite recent diplomatic headlines, suggesting policymakers should prepare for a potential tightening cycle. The comment came as markets digested signals from both monetary and geopolitical fronts, ahead of the June policy meeting, heightening scrutiny.

The backdrop to Schnabel’s caution is a tentative US‑Iran peace deal that reopened the Strait of Hormuz, a key artery for global oil shipments. While the agreement eases immediate supply‑chain concerns, it does not erase underlying demand‑side pressures or lingering cost‑push factors. Traders therefore remain split on whether the easing of geopolitical risk will translate into lower headline inflation. Analysts say oil slip could help.

Investors watching euro‑area bond yields see Schnabel’s warning as a signal that rate hikes could linger, pressuring credit spreads and euro‑denominated assets. Corporations facing higher financing costs may delay capex, while exporters could feel the squeeze of a stronger euro. Market participants should price in a longer period of elevated rates as the ECB navigates these mixed signals. Investors must adjust their models accordingly.