ECB hikes by 50bps

The euro is little changed really against the dollar and sterling this morning – despite the ECB’s larger than expected 50bps increase in interest rates yesterday – as it continues to trade in and around $1.02 and 85p respectively, while the pound is still hovering just below $1.20 against the US currency

In government bond markets, German 10-year yields ended marginally lower yesterday, again notwithstanding the larger ECB rate hike, and they have dipped further to under 1.20% this morning in line with a fall in equivalent US yields which are now trading just below 2.90%. However, Italian 10-year yields have risen to almost 50bps following the resignation of Prime Minister Draghi and the calling of elections for late September

The ECB raised interest rates by 50bps at yesterday’s monetary policy meeting, larger than the 25bps increase it guided following its June meeting, thus expediting its exit from negative rates, and said further ‘normalisation’ (i.e. increases) in rates would be appropriate at upcoming meetings

The ECB also announced a new policy tool – the Transmisison Protection Instrument (TPI) – which the central bank says will be used when necessary ‘to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area’

Consumer confidence in the UK remained at a multi-decade low in July, while retail sales dipped by 0.1% in volume terms in June, following a larger than previously estimated fall of almost 1% in May, and were almost 6% lower than in the same month in 2021

Data due today includes flash PMIs for the Euro area, UK and the US