- 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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.