(Kitco News) - The ECB organized a special meeting on Wednesday morning to discuss the situation surrounding a rate hiking cycle and inflation. Italian bond yield tumbled as the announcement hit newswires from 4.30% to a low of 3.93%. The ECB was said to have discussed the reinvestment of pandemic emergency purchase programme (PEPP) bonds at the emergency meeting. After the meeting, ECB's Wunsch said the ECB is very open to stepping in if the markets overreact.
Bank stocks in Italy have fallen in recent days as the refinancing costs at higher rates were looking like it was going to be an issue. Today the likes of Unicredit, Intesa Sanpaolo and BPER Banca rose between 4.3% and 5.6%. Teeuwe Mevissen, senior macro strategist at Rabobank "Clearly, the market is pricing in some kind of an intervention,"
It is fair to expect a strong verbal commitment from the ECB that it will not tolerate any fragmentation within the eurozone. Ulrike Kastens, an economist at DWS International said “The ECB is likely to focus on greater concrete flexibility of reinvestment as a first line of defense. This could contribute to a calming of the market.”
Looking at the reaction to the news, the 30-minute chart below shows EUR/USD bouncing off the recent lows near 1.04 to trade around 80 pips higher. The price has now hit some intraday resistance and the next support level is down at 1.0450.
