MUFG Research discusses its expectations for next month's ECB policy meeting.
"It has been notable that long-term euro-zone government bond yields have dropped back since late last week. It follows comments on Friday from ECB President Lagarde in which she reiterated again that the ECB are “closely monitoring” bond yields. It has signalled to market participants that the ECB are uncomfortable over the recent rise in bond yields...It poses clear risks to our view that the ECB will step back from a “significantly higher” pace of purchases in Q3. We had assumed that the improving growth outlook and still loose financing conditions would encourage a mini-taper," MUFG adds.
"If the ECB decides to maintain a faster pace of QE purchases at the June meeting, it should help to dampen the risk of a sharper move higher for EUR/USD in the near-term," MUFG adds.