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

The yield on the Italian 2-year bond
TMBMKIT-02Y,
0.911%

shot up 12 basis points, to 0.92%. The yield on the German 2-year bund
TMBMKDE-02Y,
0.262%

rose 13 basis points, to 0.27%.

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