The European Central Bank (ECB) left its benchmark deposit rate unchanged at -0.50%. The central bank also reiterated its guidance that net asset purchases (Quantitative Easing or QE) should end in Q3. The euro saw a substantial drop in reaction. Economists at TD Securities expect EUR/USD to remain on the back foot for most of Q2.
“The ECB left its policy statement almost entirely unchanged from the March decision, with the APP still expected to conclude in the third quarter, and interest rates to rise ‘some time after’ the conclusion of the APP. With the APP not ending until July at the earliest, a rate hike before September now looks less likely.”
“Looking forward to the Press Conference, we look for clarification over why the ECB felt comfortable maintaining an outright easing stance through the next 3 or 4 months, despite the significant upside move in inflation, which we now expect to approach 9% by mid-year.”
“The ECB didn't offer much support to the EUR out the gate, especially as other central banks look quite reactive to fight inflation.”
“We think the EUR outlook is a matter of sequencing and think it is too early to trade a EUR pop against other currencies that offer active central banks, favorable terms of trade, carry, and positive growth momentum. That means EUR/USD is likely to remain on the back foot for most Q2.”
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