The euro has been slumping against the dollar since the beginning of this week following renewed lockdowns in France and Germany, and reached a 1-month low after today’s European Central Bank meeting. While the release of the policy statement held no surprises for the euro, the Q&A session of the press conference sent EURUSD down slightly further.
Today’s statement is almost identical to the one released after the September meeting, apart from the first paragraph. In this paragraph, the ECB stated that it will release its new macroeconomic projections with a thorough reassessment of the outlook and the balance of risks in December. On the basis of this updated assessment, the ECB will recalibrate their instruments. For now, the ECB will continue to conduct purchases via the Pandemic Emergency Purchasing Programme until at least the end of 2021. The ECB has plenty of ammunition left in the programme, as it has so far used less than half of its €1,350bn PEPP envelope.
During the press conference, ECB President Christine Lagarde stated there is “little doubt” that policymakers will agree on a new stimulus package in December as the virus case count and the renewed lockdowns in the eurozone’s largest economies threaten a double-dip recession.
In terms of what the ECB will do, and how big the bazooka is likely to be, Ms Lagarde did not give much away. However, she did signal that the next step could be broader than just an increase or extension of the PEPP envelope, as she stated that the ECB is not ruling out any of the tools they have.
The ECB’s decision to leave its monetary policy tools unchanged was in line with the consensus and our own expectations.
For now, markets can expect a dovish package in December, but with the largest eurozone economies now entering fresh national lockdowns and the virus case count remaining concerningly high, a move by the ECB before the actual December meeting may not be entirely ruled out.
EURUSD dips below levels last seen in September after renewed lockdown measures and gloomy but unsurprising message from ECB President Lagarde
Author: Ima Sammani, FX Market Analyst