The Euro has just strengthened after the European Central Bank (ECB) raised interest rates for the first time in 11-years.
Markets were expecting a small raise of 0.25%, however they made a larger hike of 0.5% which has boosted the Euro and pushed it higher across the board. The ECB have been very cautious over raising rates since inflation levels spiralled around the world and clearly they now feel they cannot just leave inflation to continue as it is.
The ECB also announced a new anti-fragmentation tool called the “Transmission Protection Instrument (TPI). This new tool is described as “safeguarding the smooth transmission of its monetary policy stance throughout the Euro area”. We are yet to see any real detail on this tool and it may well have been pushed through quicker due to the current political events in Italy. So, we shall see what the market make of this once they have further details on it.
As a result, GBP/EUR dropped nearly 1-cent and currently sits at a 2-week low. The EUR/USD is up around 1-cent on the day and trading around a 2-week high. All eyes are now on President Lagarde’s current press conference where investors will be listening for more information on this new TPI tool and their general outlook.
