EURUSD Jumps After ECB Hints At Rate Hike, Report Weidmann May Replace Draghi

Having surged after The Fed hiked rates 'dovishly', EURUSD is surging- bouncing off 1.07 the figure - after ECB Council member Nowotny told Handelsblatt that a "rate increase may be on the way."

The European Central Bank (ECB) could be heading away from loose monetary policy in a different manner than the U.S. Federal Reserve, Ewald Nowotny, the Austrian ECB council member, told Handelsblatt in an exclusive interview.


The American model was to finish bond purchases first, but this model might not transfer well to Europe, said Mr. Nowotny, who also serves as the Austrian National Bank governor. All interest rates also wouldn’t have to be increased simultaneously nor to the same extent, he added. 


“The ECB could also raise the deposit rate earlier than the prime rate,” Mr. Nowotny said.

While this may be nothing more than a market-reaction gauging trial balloon, what was more interesting in the German report, is that it suggests in 2019 none other than Europe's uberhawk (if only on paper) Jens Weidmann may replace Mario Draghi.

On the topic of the succession of ECB President Mario Draghi, whose term expires in 2019, Mr. Nowotny said that decisions were being made “in the political sphere,” and they were out of the hands of the central bank chiefs.


Mr. Nowotny said he assumes that it will be a selection process between the most qualified. When it comes to the most likely picks, Germany’s central bank president Jens Weidmann and his French colleague François Villeroy de Galhau rank up there, “no doubt about it,” Mr. Nowotny said.


Jens Weidmann is a “highly valued colleague,” Mr. Nowotny said, and the Austrian National Bank has very close relations with the German central bank, the Bundesbank

As a result, EURUSD's early weakness is erased.

Bund Futures are under pressure on the news (as the TSY-Bund spread narrows).. Selling Bunds, Buying Treasuries