The prospect of a major rate hike from the European Central Bank at the interest rate meeting expected on Thursday buoyed the euro on Tuesday. In addition to an increase in the key interest rate by a quarter of a percentage point, a possible increase of half a point is also to be discussed, as the news agency Reuters learned from insiders familiar with the matter. The euro then climbed more than 1 percent to hit $1.0268 after last week falling below par for the first time since 2002. Investors also positioned themselves accordingly on the bond market in the run-up to the ECB meeting and threw government bonds out of their portfolios. The yield on two-year German bonds, which responds to short-term interest rate expectations, rose about 10 basis points to 0.642 percent. Yields on ten-year benchmark bonds rose across the euro area. ECB President Christine Lagarde had actually only promised an increase of a quarter of a percentage point and a possibly larger increase only for September. After more than a decade of an ultra-loose monetary policy, the monetary watchdogs want to tighten their interest rate reins for the first time. The rapid increase in energy prices has driven inflation in the euro area to a new record high and is putting the ECB under pressure. The US Federal Reserve reacted much earlier to the ongoing surge in inflation with higher interest rates.
The prospect of an early resumption of Russian supplies via the important pipeline “Nord Stream 1” caused gas prices to fall. European futures fell 3.1 percent. According to insiders, after the end of the maintenance work on Thursday, Russian gas will again flow through “Nord Stream 1” to Germany, albeit with reduced capacity.