ECB will not follow Fed’s rate hike pace – Other conditions in Europe

Eurozone bonds are under pressure today despite its concerted effort ECB to distance itself from Fed policy.

More specifically, the head of the ECB, Christine Laganart, sent from Frankfurt a reassuring message about how much the interest rates will increase in total in the eurozone.

As she said, the ECB is not going to imitate the Fed, which sent a message yesterday for a bigger interest rate hike, because the economic conditions in the eurozone are different from the US. It is recalled that yesterday its head FED Jerome Powell after the announcement of the 0.75% interest rate hike, said the final increase would be higher than they had originally predicted.

However, Christine Lagarde argued today that “We are not the same and we cannot progress either at the same pace (or) under the same diagnosis of our economies.” He also admitted that the ECB was influenced in its decisions by the impact that the Fed’s initiatives had on the foreign exchange market and in particular by the decline in the exchange rate euro against the dollar.

The ECB board member Panetta also pointed out the need for the ECB to be more careful in the rate at which it will increase its interest rates. In his speech he argued that the eurozone it is more vulnerable than the United States to a global economic slowdown which means the ECB needs to be careful. In particular, he argued that the ECB should avoid raising interest rates too quickly, as this could be too damaging to economic growth, house prices and financial markets. “If these larger-than-expected increases are interpreted as signaling a higher final rate, we could have a stronger impact on financing conditions – and ultimately economic activity – than anticipated,” Panetta said at an ECB event.

No transactions were recorded today in the secondary bond market, specifically in HDAT. The yield on the 10-year bond rose to 4.70% from 4.55% versus 2.23% for the corresponding German bond, bringing the spread to 2.47% from 2.43% yesterday.

In the foreign exchange market, the euro is falling against the dollar, as a result it is trading at $0.9761 in the early afternoon from the level of $0.9789 that opened the market.

The indicative euro/dollar exchange rate announced by the European Central Bank was 0.9753 dollars.

RES-EMP

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