ECB Preview: Gloomy Lagarde to weigh on EUR/USD

The European Central Bank (ECB) is set to leave its policy unchanged and the focus is on its message to leaders ahead of the EU Summit. A balanced message that calls governments to act without sounding depressing would keep the euro bid, while a gloomy, helpless stance would push it down, FXStreet’s analyst Yohay Elam informs.

More – ECB Preview: 13 major banks expectations for today's meeting

Key quotes

“The ECB is set to leave its policy unchanged in its July meeting. The ECB is also set to leave its interest rates unchanged, with the main lending rate at 0% and the deposit rate at -0.50%. Recent inflation figures have held up above 0%, making further accommodation – lower real borrowing costs – unnecessary at this point.” 

“The central bank's economic assessments and projections carry considerable weight and it could urge governments to act by warning of the long-term damage that the pandemic could inflict. Lagarde's warning would compound the European Commission's latest forecasts, which included a downgrade to eurozone GDP contraction from -7.7% to 8.7%.” 

“Convincing countries to act would boost the euro – but painting a dark picture may also scare investors. If the situation is so dire, investors could assess that the ECB is resigned to accepting the deterioration and worse off – is desperate and out of ammunition.” 

“If Lagarde is all gloom, EUR/USD has room to fall, while a more balanced message would probably lift the common currency once again. That could be in the form of signaling that it is now governments turn, but readying more monetary stimulus afterward.”