Fundamental analysis of the euro Tuesday, March 9
Last week, almost all European Central Bank officials warned that the ECB should respond to rising bond yields. The growth of European bond yields is due to investors' fear of inflationary pressures that will emerge after the recovery of the global economy. From a fundamental analysis point of view, it is very unlikely that the European Central Bank will reduce interest rates or tighten expansionary monetary policy at this week's interest rate meeting. But the recent jump in European bond yields (especially the 10-year German government bond yields) could force the European Central Bank to make a small change in monetary policy and perhaps increase bond purchases to prevent further growth in bond yields. Give. The slope of the German government bond yield curve has recently widened, worrying European monetary policymakers.
A member of the board of the European Central Bank (Fabio Panetta) said last week that the sharp rise in the yield curve is an unfortunate event that the European Central Bank should stop growing as soon as possible by increasing the volume of bond purchases. The head of the French central bank also said that the rise in bond yields is unjustifiable and the European Central Bank (ECB) must deal with it. Most members of the European Central Bank seem to agree with the increase in the volume of bond purchases under the PEPP program.
Undoubtedly, the increase in the volume of bond purchases by the European Central Bank will be to the detriment of the EURUSD currency pair. Data on the volume of European Central Bank bond purchases will be released on Monday. On the other hand, if the volume of bond purchases does not change, the euro will strengthen. In that case, the euro trend will depend on the words of the head of the European Central Bank.