Italy’s 10-year BTP yield remained just below 3.5% as investors positioned ahead of the European Central Bank’s meeting next week, where policymakers are expected to consider the deflationary effects of a stronger euro on their policy stance.
The euro hit a 4½-year high above $1.20 at the end of January following US President Trump’s remark that he was unconcerned about the dollar’s recent decline.
Meanwhile, ECB policymaker Martin Kocher warned that further euro appreciation could prompt the central bank to resume interest-rate cuts.
Money markets have adjusted accordingly, pricing in roughly a 30% chance of a rate cut by September, up from less than 10% a week ago, while the likelihood of a rate hike in April 2027 fell to 20%, down from 50%.
On the economic data front, Italy’s economy grew 0.3% in Q4 2025, slightly above forecasts of 0.2%, providing modest support for the market outlook.