Bond market volatility rocks the Euro

29 ต.ค. 2021

Data released Thursday showed that U.S. GDP growth slowed sharply to a 2% annualized rate in the third quarter. Meanwhile, investors continued to price in rate increases by the European Central Bank, while dismissing President Christine Lagarde’s effort to push back against such expectations.

Market expectations of higher interest rates has brought out bears, with Danske Bank strategists expecting the euro to fall to $1.10 over the next 12 months.

29 ต.ค. 2021

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"Investors are just not buying what the ECB is saying," said Marios Hadjikyriacos, a senior investment analyst at brokerage XM.

"With inflation expectations going ballistic, markets are betting the central bank will be forced to take its foot off the gas sooner, first by slashing asset purchases and then with tiny rate increases."

Money markets are nearly fully pricing in a 10 bps rate hike from the European Central Bank by July 2022 and nearly two rate hikes by October 2022. A week ago, markets were pricing in barely one rate hike by October 2022 and less than half a rate hike by July 2022.

Major currencies have failed to benefit from surging yields on short-term government debt globally as investors have weighed the likelihood that central banks risk falling behind the curve in taming widening inflationary pressures that was perceived as transitory.

On Friday, the single currency slipped 0.1% versus the dollar at $1.1674. It tanked to its lowest level versus the Swiss franc since July 2020 at 1.0625 francs per euro .