• No change in rate policy or emergency program forecast.
  • Rising COVID-19 cases and potential closures increase pressure for action.
  • Lagarde expected to reassure that the ECB can and will act when necessary.
  • Euro has fallen to near three-month lows.

With COVID-19 cases rising and several countries contemplating new restrictive measures the European Central Bank is again under pressure to support the Union's economy.

Bank President Christine Lagarde will likely promise that she is prepared to ease policy when economic conditions warrant but that a decision is not yet necessary at the meeting on Thursday.

The bank is widely expected to leave its main refinance rate unchanged at 0% and its deposit rate at -0.5%. The ECB's bond purchase program, the Pandemic Emergency Protection Program (PEPP), with only about 500 billion-euros of its allotted 1.35 trillion limit used, should also remain unmodified.

Eurozone economy

Third quarter GDP in the Eurozone is projected to rebound 9.4% after contracting 3.6% in Q1 and 11.8% in April, May and June. Unemployment has been slowly increasing from 7.1% in March to 8.1% in August, the high of the pandemic era, with 8.3% expected for September,.

EMU GDP

FXStreet

France, Italy and Spain have already introduced modified restrictions and Germany is preparing to follow, of the type that crashed the economy earlier in the year. Even though most economic limits were lifted in the summer, euro-area services were contracting from the huge declines in travel and hospitality.

Governments will again need to provide economic and business support. Italy approved a new relief package this week and Germany is planning more assistance.

The returning pandemic and potential for re-instituted closures means that a second recession is becoming ever more likely.

The Brexit talks with the UK are another flash-point but with both economies under severe COVID-19 threat neither side will want to risk the additional exactions of a no-deal departure.

Markets

Credit markets have been betting that more bond buying by the ECB is on the way. Many expect that the PEPP scheme will be enhanced by another 500 billion euros in December.

German bonds rose on Wednesday sending the 10-year yield to its lowest since the March panic. Italian and Greek yields have also dropped to record lows this month.

Equities have fallen in Europe and the United States. In Europe the FTSE lost 2.55% and the German DAX 4.17% on Wednesday and the Dow and S&P 500 were down 3% in the early afternoon. Japanese and Chinese exchanges saw small gains.

The euro has come under selling pressure this week as the viral spread makes costly preventative measures more likely but it is still well within its1.1630-1.1940 range of the last three months.

Conclusion

The pandemic is a slow moving economic catastrophe. If European governments choose to shut their economies in response to the return of the COVID-19 infections, the result is well-known.

The planners at the ECB and the continent's chancelleries do not have to speculate on the outcome, if their economies are closed they will have a second recession. The only question is how soon they will act. The odds for a surprise preventative strike from the ECB are rising.

 

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.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD extends slide toward mid-1.0200s after US data

EUR/USD extends slide toward mid-1.0200s after US data

EUR/USD continues to decline toward 1.0250 during the American trading hours on Friday. After the data published by the UOM showed that the long-run inflation outlook rose to 3% in August from 2.9% in July, the dollar gathered strength against its rivals, weighing on the pair.

EUR/USD News

GBP/USD pushes lower 1.2100 on broad dollar strength

GBP/USD pushes lower 1.2100 on broad dollar strength

GBP/USD is trading deep in negative territory near 1.2100 during the American session on Friday. With the UoM's Consumer Sentiment Survey pointing to a modest increase in the long-run inflation outlook, the US Dollar Index extended its rally, reflecting a broad dollar strength.

GBP/USD News

Gold clings to modest gains above $1,790

Gold clings to modest gains above $1,790

Gold stays relatively resilient on Friday and trades modestly higher on the day above $1,790. Although the greenback continues to outperform its rivals on the latest US data, falling US Treasury bond yields help XAU/USD hold in positive territory.

Gold News

Shiba Inu ready to go ballistic: Shiba Eternity released in Vietnam

Shiba Inu ready to go ballistic: Shiba Eternity released in Vietnam

Shytoshi Kusama, the project leader of Shiba Inu announced the launch of Shiba Eternity for Vietnamese players. The game is available for testing and the team has asked users for their review. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures