• Main rates unchanged at -0.0%, 0.25%, -0.5%.
  • Bank does not add to bond buying limits, PEPP stays at €750 billon.
  • Lowers rates on targeted longer-term refinancing operations (TLTRO).
  • Euro retains its recent edge against the dollar but broke no new ground.
  • Italian and Spanish 10-year yields flat.

The European Central Bank kept its main interest rates unchanged -0.0% as widely expected but in a small surprise declined to increase its bond buying program, putting the decision off until at least the June 4 meeting.

There had been modest market anticipation that to help eurozone governments with the skyrocketing economic cost of the Coronavirus outbreak the bank would increase the limits of its pandemic emergency purchase program (PEPP).

EU and ECB politics

President Christine Lagarde and bank official have been trying to pressure the eurozone political leadership to provide fiscal support for the economy that could shrink 10% or 15% this year.  

Expect Ms Lagarde to be overtly dovish in her press conference.  She will no doubt promise that the bank is committed to supporting the eurozone economy until it recovers from the economic trauma of the Coronavirus pandemic. That may be enough to assuage any disappointment from the lack of new initiatives today.

The bank’s PEPP bond purchase program launched just five weeks ago and although it has already bought 125 billion in assets some European sovereign rates remain stubbornly high.  It has also expanded the acceptable types of collateral to some non-investment grade or junk securities from banks.

European politicians have been discussing a trillion euro reconstruction fund but so far have been unable to construct a deal. The bank may prefer to wait until the terms and funding of the fund are complete before raising the limit in its PEPP.


The united currency moved slightly higher and then lower after the ECB announcement but within 30 minutes was at 1.0868  just off its pre-ECB level of 1.0878. In the longer term the fate of the fate of the euro depends more on the continent's success in curbing the Coronavirus and restarting the EMU economy than on specific amounts of ECB loan guarantees. 


First quarter GDP fell 3.8% from the final three month of 2019, slightly more than the -3.5% forecast and the unemployment rate across the bloc increased to 7.4% from 7.3% as reported by Eurostat earlier today. 

Lockdowns began earlier in Europe with parts of the eurozone and Italy in particular closed down in mid- February so the economic impact was much greater. American closures did not begin until the third week of March and have not been universal with a number of states remaining open throughout.

European sovereign debt

Italy’s sovereign debt was downgraded by Fitch this week to just above junk status pressuring the borrowing costs of the eurozone’s third largest economy.  The yield on its 10-year bond has climbed 87 basis points to 1.78% in the past two months and was unchanged after the ECB announcement.

The Spanish 10-year yield was also flat at 0.77%.

Junk status for Italian debt would prevent the ECB from accepting its bonds as collateral.  But the bank and the EU political leadership is not about to abandon Italy and has been preparing to change or at least suspend the prohibition by accepting non-investment grade bonds from other sellers.

 The ECB is prohibited from funding national deficits but it is allowed to buy sovereign debt on the secondary market.  Many economists and so-called Northern politicians think that line is too fine to be meaningful.


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.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

AUD/USD battles 0.7700 amid covid, stimulus woes-led risk-aversion

AUD/USD holds the lower ground, testing the 0.7700 level amid broad risk-aversion that has triggered a bounce in the safe-haven US dollar. Uncertainty over the US stimulus, worries over new covid strain and lockdowns weigh on the risk appetite. 


GBP/USD pressured towards 1.3650 amid risk-off, ahead of UK jobs

GBP/USD remains depressed, heading towards 1.3650. The cable responds to the fresh risk-off mood after flashing a two-day losing streak. UK virus data suggests an improvement in covid conditions, Health Secretary Matt Hancock gives credits to activity restriction measures.


Gold: Bulls target daily extension

Gold is on the verge of an upside extension on a break of weekly resistance. XAU/USD is making progress with respect to the bullish market structure following a period of consolidation in recovery of the daily correction.

Gold news

Ripple is South Korea’s most popular cryptocurrency, but XRP price stays pressured

XRP/USD bounces off intraday low of 0.2647, stays below 21-day SMA for fifth day. As per the latest report from Messari, Bitcoin and Ripple are the most popular cryptocurrencies in South Korea.

Read more

US Dollar Index: A breach of 90.00 exposes 2021 lows at 89.20

The inability of USD-bulls to push further north of recent tops in the 91.00 region in past sessions prompted sellers to return to the markts and shifted the attention to the potential continuation of the downtrend.

US Dollar Index News

Forex Majors