Euro Rises to One-Week High Despite ECB Stoking Double-Dip Recession Fears By Investing.com

By Yasin Ebrahim

Investing.com – The euro rose to a one-week high against the greenback even as European Central Bank President Christine Lagarde stoked fears the eurozone is set for double-dip recession as the pandemic ravages economies across the bloc.

EUR/USD rose 0.47% to $1.2161.

The ECB left its rates unchanged and maintained its current pace of bond buying on Thursday. But Lagarde suggested that the prolonged coronavirus restrictions across the bloc had likely caused eurozone growth to fall again in the final quarter of 2020.

“Risks surrounding the euro-area growth outlook remain tilted to the downside, but less pronounced,” Lagarde said. Still, there was reason for optimism as the roll-out of vaccines, which started in late December, “allows for greater confidence in the resolution of the health crisis,” she added.

The European Central Bank also signaled it may not need the full extent of its emergency purchase program to support the recovery. Though added that the program could be increased to ensure the euro area economy remains well financed. “If favourable financing conditions can be maintained with purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,”  according to the monetary policy statement.

Lagarde, however, did not elaborate on how it would assess whether financing conditions were favorable, saying that the central bank would adopt a “holistic approach.”

Some analysts, however, believe the central bank will primary focus on curbing in rising sovereign bond yield in countries across the bloc with high levels of debt like Italy.

“[T]he ECB is probably primarily concerned with limiting the yield spreads of the bonds of particularly highly indebted countries,” Commerzbank (DE:CBKG) said, adding that it would likely do so through bond buying.

Lagarde, however, stressed that the bank was not seeking to curb bond yield spreads of certain governments. “We are not riveted to any particular yield, we take into account multiple indicators that relate to the financing of the economy.”

Italian bond yields extended gains to end the day at seven-week highs.