Euro Slips As ECB March Softly, Sustains Purchases

Euro: The ECB rate decision, which had been widely anticipated, did not disappoint. In a slightly hawkish surprise, the ECB altered their massive bond purchase program. From now on, the ECB will slow the pandemic bond program from a significantly quicker to a moderately slower pace. The ECB is becoming more optimistic about the economy, indicating that it can withstand less support. Following the announcement of fewer PEPP purchases, the euro strengthened marginally. Because the ECB did not define what the new rate will be in its statement, the change in the rate is only a minor one.

In Thursday’s session, the euro made minor gains. The EUR/USD currency pair is currently trading at 1.1827, up 0.10 percent. Germany’s trade balance for July was the only data event from the eurozone. The MoM figure of EUR 17.9 billion was significantly higher than the consensus figure of EUR 13.0 billion. The July trade balance reached its greatest level since February, thanks to a 0.5 percent increase in exports and a 3.8 percent decrease in imports compared to June.

President Christine Lagarde of the European Central Bank stated that the reduction in purchases was not tapering, implying that it was merely a symbolic gesture. Even though the Delta variety of Covid has not been contained, the move represents an improvement in the eurozone economy, as growth and inflation are rising upward. Inflation has risen to a 10-year high, surpassing the ECB’s target of 2%. As a result, the ECB has borrowed a page from the Fed’s playbook, claiming that the recent spike in inflation is just temporary and that inflation is projected to decline. If the euro economy improves and inflation remains high, the Bank will be under pressure to make more adjustments to reflect the improved economy.

Euro Bulls Hold the Line, Looking for More Upside

The EUR/USD pair is fighting to maintain gains gained in the North American session on Thursday, with a high of 1.1841 and a trading range of 1.1830. Following the European Central Bank meeting, where it was announced that emergency bond purchases will be reduced in the coming quarter, the euro is holding onto minor daily gains. As the country’s inflation readings approach their highest in nearly a decade, this is considered as the central bank’s first little step toward unwinding the emergency relief.

In the next months, the focus will be on the ECB’s definition of “moderately” – anything less than €60 billion each month may be considered bearish.” Meanwhile, Christine Lagarde, the governor of the European Central Bank, expressed optimism about the country’s economic prospects.

She stated that there has been a robust recovery in employment and corporate investment and that private consumption has plenty of room to grow. Although the ECB’s growth and inflation predictions for this year have been raised, the forecasts for 2023 provide a better picture of where the economy is expected to stand over the forecast horizon.