ECB meeting is a major focus today and no policy change is expected. ECB should maintain the deposit rate at -0.5%. The main refi rate and the marginal lending rate will also stay unchanged at 0% and 0.25% respectively. The PEPP program will continue to run with a total envelope of 1.35 trillion euro. We expect the central bank will reiterate the guidance that the purchases “will” continue “until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over”.
Attention will main be on ECB’s view on recent Euro strength, against Dollar mainly. Chief Economist Philip Lane’s speech at Jackson Hole. Lane raised concerns that rising EURUSD could prolong weak inflation and inflation expectations. As he suggested, “we have an inflation mandate and we care about the overall performance of the European economy”. He added that there has been “a repricing in recent weeks” in EURUSD “to some degree”.
EUR/USD has been resiliently holing on to 1.1762 near term structure support recently. But traders might only be waiting for ECB Governor Christine Lagarde’s nod on selling it through the support to correct the strong rally since March.
Some suggested readings on ECB:
