On Thursday, the central bank torch will be passed to the ECB. At its latest meeting, this Bank decided to accelerate its Pandemic Emergency Purchase Program in order to stop any unwarranted rise in bond yields. Although other major central banks share the view that the latest rise in bond yields around the globe just represents a healthy economic recovery, that’s not the case for the ECB. Rising bond yields in Europe have partly spilled over from US markets reacting to President Biden’s massive fiscal stimulus.
That said, PMIs since then suggested that the Euro-area economy is on a recovery mode, while inflation rose. Although several Eurozone nations are still in lockdowns, and despite ECB President Lagarde noting that any rise in inflation is likely to be temporary, the minutes of the last meeting revealed that officials discussed the idea of reducing the pace of PEPP purchases in the future.
Thus, it would be interesting to see whether they will signal something like that at this meeting, or whether they will stay ready to ease further if deemed necessary. With government bond yields around the globe pulling back recently, we would see the former case as the more likely one, and if indeed this is the case, the euro is likely to continue strengthening.
Reference: Investing
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