The euro is preparing to end the best week since May against the dollar, thanks to the decision of the ECB by Christine Lagarde to raise euro area rates more aggressively than expected, in order to fight inflation galloping in the block.
Yesterday, the ECB raised the three main reference rates, namely the interest rates on main refinancing operations, on marginal lending operations and on deposits with the central bank by 50 basis points, respectively to 0.50%, 0, 75% and 0.00%, with effect from 27 July 2022, marking the end of the era of negative rates.
The euro is preparing to end the week, also marked by the government crisis in Italy – which culminated yesterday in the resignation of Prime Minister Mario Draghi, in the dissolution of the Chambers by the President of the Republic Sergio Mattarella and in the decision to establish for 25 September the date of the early elections – with a solid increase of + 1.21%.
The Dollar Index, on the other hand, has lost 1.27% on a weekly basis since last Friday’s session.
Today the euro is weakening again against the US currency, losing 0.40% to $ 1.0186, but it is confirmed above the parity, which had pierced for the first time in 20 years last week.
Yesterday the ECB also launched the highly anticipated instrument against the fragmentation of the euro area.
On the day of the resignation of Prime Minister Mario Draghi, in an Italy shaken by the government crisis, the ECB announced the instrument known in Italy as an anti-spread shield or BTP saving, baptized by the Eurotower TPI (instrument for protecting the mechanism of monetary policy transmission, i.e. Transmission Protection Instrument, TPI).
The ICC will be an instrument without ex ante limitations, but its activation will only be possible if the country that needs it respects four conditions: 1) Compliance with the tax rules of the European Union. 2) The absence of serious macroeconomic imbalances. Fiscal sustainability, therefore sustainability of the debt trajectory 4) The presence of solid and sustainable macroeconomic policies.