ECB reportedly creating a crisis tool in case bond yields jump – BBG

Joel Frank Independent Analyst

The European Central Bank is creating a crisis tool to address a potential jump in bond yields, Bloomberg reported on Friday. The bank is yet to decide if this backstop would be announced pre-emptively, the report added, noting that the tool remains at the stage where it is still being designed by staff.

Market Reaction

The euro did not react to the latest reports. But the report highlights one of the key dilemmas, or balancing act, that the ECB must face. On the one hand, the bank clearly needs to move in a direction of tighter monetary policy conditions given the inflation backdrop in the Eurozone, something increasingly being recognised by the governing council.

The ECB likely needs to do this to a sufficient degree that it prevents further broad euro depreciation, given this depreciation worsens the inflation issue. On the other hand, the ECB must avoid a situation where markets lose confidence in the ability of the likes of Italy and other highly indebted EU nations to be able to sell their debt, and must thus remain present as a buyer of last resort.

They do not want a repeat of the EU debt crisis from a decade ago, hence the likely development of this new "crisis" tool.

Author

Joel Frank

Independent Analyst

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018, specialising in the coverage of how developments in the global economy impact financial asset

AUD/USD remains offered; supported by 0.7100

AUD/USD adds to Monday’s retracement, although it manages well to keep the trade above the 0.7100 yardstick ahead of the opening bell in Asia. Once again, the softer tone in spot follows decent gains in the Greenback amid rising bets for a Fed rate hike on Wednesday.

USD/JPY extends gains toward 155.00 amid USD resurgence

USD/JPY keeps pushing higher toward 155.00 early Tuesday, looking for more upside, as traders await the FOMC and BoJ meetings this week. Meanwhile, Fed rate-hike bets and oil-driven inflation risks keep US bond yields near multi-year highs, supporting the US Dollar and the pair. That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and could limit USD/JPY's upside. .

Gold set to fall toward $4,000 as Warsh faces a Fed rate-hike dilemma

As the Federal Reserve monetary policy announcement approaches and the Middle East war intensifies, the US Dollar resumes its advance. Gold price posted a tepid attempt to recover its shine in early August, but with renewed USD demand, the bright metal faltered miserably and is now closer to the $4,000 mark than the encouraging $4,700 peak from a month ago.

Bitcoin pulls back as valuation ceilings hold while XAU weakness persists

Bitcoin (BTC) corrects alongside the broader cryptocurrency market on Tuesday as selling persists ahead of the United States (US) Federal Reserve (Fed) monetary policy decision. Market participants expect the central bank to raise interest rates to 3.75%-4.00% on Wednesday, potentially weighing on risk assets.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.