ECB Quick Analysis: Lagarde offers four subtle changes that may send the euro higher


  • The ECB has left its policy unchanged but has upgraded its language.
  • Characterizing risks as balanced, while providing more support are among the positive factors.
  • EUR/USD has room to rise in response to the bank's moves.

Euro boom? Not so fast, as everything is slower in Europe, but the European Central Bank has acknowledged improving conditions in its subtle manner. Christine Lagarde, President of the ECB has released three relevant statements that may keep the euro bid – and potentially send it to new highs.

Here are four positive factors:

1) Risks balanced

Even during the time of Mario Draghi – Lagarde's predecessor and now Italy's premier – the ECB said that the risks are tilted to the downside. The change, for now, is subtle. While the Frankfurt-based institution still sees short-term risks as somewhat unfavorable, it now says that in the medium term, the risks are balanced. 

The upgrade stems mostly from vaccines, which have accelerated in Europe, but also due to an increase in global demand. It seems that European policymakers are content with America's economic boom. Risks come from a potential resurgence of the virus and its variants. 

2) Firm rebound

The ECB acknowledges that stronger growth is coming, albeit it does not use the strongest possible words. Nevertheless, Lagarde mentioned that while the economy likely contracted in the first quarter, there are signs that the more sensitive services sector is on holding up. Moreover, the second quarter is likely strong.

Strong growth and the eurozone seem like an oxymoron to some, but the old continent may experience significant expansion for a change.

3) Inflation likely to increase

Also here, the caveats come first – the recent rise in consumer prices comes from "idiosyncratic" factors that may prove temporary, according to Lagarde. However, she added that inflation will likely increase in the coming months – and may stay higher once the pandemic fades.

As the ECB is officially only responsible for inflation, this upgrade is significant. 

4) No phasing out of PEPP

The bank repeated its pledge to ramp up its bond-buying scheme via the Pandemic Emergency Purchase Program (PEPP) during the second quarter, which would allow governments to boost the economies. Moreover, in an answer to a question, Lagarde said the Governing Council did not even discuss phasing out the PEPP program, meaning it has a long way to go. She classified such talk as premature.

While the US Federal Reserve's dollar printing weighs on the dollar, the ECB's euro creation is taken differently – as boosting growth rather than devaluing the currency. 

Conclusion

The ECB is acknowledging the improving outlook while maintaining its support. That is a Goldilocks scenario for the common currency. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD struggles above 1.2050 inside rising wedge

EUR/USD is holding steady below 1.2100, wavering inside a bearish chart pattern. MACD also teases sellers but key EMAs add to downside filters. Bulls have a bumpy road to recovery, 1.2200 becomes crucial resistance.

EUR/USD News

GBP/USD: Bulls lookig for breakout to the topside

Following the progression of the price action and market structures across the various time frames in GBP/USD, it can be concluded that the bulls are now in the most favorable position. The daily chart offers compelling upside bias as bears start to run out of juice.

GBP/USD News

Dogecoin price spikes on Musk tweet, renews momentum for DOGE to test $1

Dogecoin price closed below the critical April high yesterday, putting the pursuit of $1.00 in doubt. The new Elon Musk tweet has reversed the descent and raises the potential of DOGE closing today with a bullish engulfing day.

Read more

EUR/USD struggles above 1.2050 inside rising wedge

EUR/USD is holding steady below 1.2100, wavering inside a bearish chart pattern. MACD also teases sellers but key EMAs add to downside filters. Bulls have a bumpy road to recovery, 1.2200 becomes crucial resistance.

EUR/USD News

Why US retail sales will rock the markets on Friday

It was a rollercoaster ride in the financial markets this week and volatility is not expected to subside tomorrow with the April US retail sales report scheduled for release. investors are eager to see how well the consumer is holding up.

Read more

Majors

Cryptocurrencies

Signatures