Euro Rallies on News of Unscheduled ECB GC Meeting
- Written by: Gary Howes
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Image © European Central Bank
Members of the European Central Bank's Governing Council will hold an unscheduled meeting on Wednesday to discuss recent issues concerning Eurozone bond movements.
The market has taken this as a signal the ECB is serious about dealing with the prospect of a disorderly Eurozone bond market, which is supporting Euro exchange rates.
The developments comes after bond yields in 'peripheral' Eurozone economies - such as Italy and Greece - rose sharply in response to the ECB's recent indications that it will hike interest rates in July and again in September.
Notably, peripheral bond yields have risen faster than those of core Eurozone countries, such as Germany and France.
This widening in the spread on Eurozone yields is concerning to the Eurozone and markets as it revives memories of the Eurozone debt crisis of the early 2010's.
"The Governing Council will have an ad-hoc meeting on Wednesday to discuss current market conditions," an ECB spokesperson said.
The market reacted favourably as it suggested the ECB would not sleep walk into another crisis.
It is expected the ECB will work at speed in developing tools to ensure the Eurozone market continues to function, thereby diminishing existential risks to the Euro.
The Pound to Euro exchange rate fell below 1.15 on the news to quote at 1.1490, meanwhile rose to 1.0454.
"EUR/USD rallied towards 1.0500 and spreads in the Eurozone periphery narrowed sharply on expectations the ECB will announce measures to deal with rising fragmentation risk in the Eurozone sovereign bond markets," says Elias Haddad, Senior Currency Strategist at CBA.
The intervention comes as the Euro extends its 2022 advance against the Pound but declines further towards parity against the U.S. Dollar.
ECB board member Isabel Schnabel said on Tuesday the ECB has "no limits" in its commitment to defend the Eurozone, referencing concerns that peripheral Eurozone spreads were heading higher.
Schnabel said the ECB was willing to launch a new instrument to counter any "disorderly" jump in the borrowing costs of weaker eurozone economies.
A key concern for investors since the ECB stated at last week's policy meeting that it was to hike rates in July was how it would intervene to tackle fragmentation in financial markets.
"Our commitment is stronger than any specific instrument," said Schnabel.
"Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits. And our track record of stepping in when needed backs up this commitment," she added.
Today's meeting could test the ECB's resolve.
Should the ECB present a convincing roadmap for containing bond markets then Euro exchange rates might rally further, but any disappointment could prove bruising.
