The euro is on the front foot during early Thursday trading, claiming back some of the previous session’s losses to the dollar. Russia resumed the supply of gas to Europe through the Nord Stream pipeline, in a move that is positive for the single currency. However, the sigh of relief from euro bulls was limited, as later today the ECB is expected to announce its first rate hike in years, and also to provide details on its anti-fragmentation tool. Doubts still linger over the size of the interest rate rise, with some observers believing it could be of 50 basis points, more than the previously indicated 25. A larger hike would make sense in the current scenario of high inflation, but could also increase doubts over the growth prospects of the eurozone, and intensify the risk of fragmentation in the periphery. So, how the euro reacts to today’s developments, will to a large extent depend on the details of the anti-fragmentation tool, which if welcomed by the markets will be likely to balance risks in the eurozone, especially at a time when a new political crisis is brewing in Italy, in a development that may drive more anxiety over rising debt servicing costs for the countries in the periphery.
Markets slid lower shortly after the opening bell in Europe on Wednesday, despite an optimistic sentiment registered during the Asian trading session, as traders brace for today’s important ECB meeting. While a 25bp rate hike is now widely anticipated in Europe, all eyes are likely to be on the new bond stability tool the ECB is also expected to unveil today. Details around this unconventional programme will be crucial, as many traders wonder how the ECB can start a new monetary tightening cycle while staying “dovish” buying bonds. If the ECB succeeds in reassuring traders with a solid plan, market sentiment would be likely to improve significantly towards riskier asset, which could change the trend for the second half of 2022. Until then, we don’t expect any clear directionality on most EU benchmarks, while market volatility should however be on the rise. Today’s decline can be explained by a bearish pressure brought by a higher EUR currency after FX traders welcomed the restart of the Nord Stream pipeline, even if Russia warned about a tight gas output for Europe. Elsewhere, traders are also watching a potential easing in geopolitical tension after Joe Biden announced his intention to have a meeting with Xi Jinping in the next 10 days, as Washington is considering lifting some US tariffs on Chinese goods.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
