Euro, bond yields surged on comments by ECB official

The euro rallied on Tuesday, helped by a rise in government bond yields as well as comments from a European Central Bank policymaker in which he said a half percentage point interest rate hike is possible.

Klaas Knot told a Dutch television program said he favors a quarter-point rate hike, but would support a half-point increase if new data suggest inflation is broadening further or accumulating. While regarded as one of the most hawkish voices on the ECB, Knot’s was the first to broach a half-point increase.

European Central Bank Governing Council member Klaas Knot became the first eurozone official to suggest a possible half-point interest rate hike if inflation risks worsen, though he backs a smaller move for now.

The Netherlands governor, one of the ECB’s most hawkish policy makers, told Dutch television that he supports a quarter-point increase in July already mooted by several of his colleagues, but then added that a larger hike shouldn’t be excluded if necessary.