European session review: EUR depreciates as investors digest the latest ECB’s monetary policy decisions and weak Q1 GDP data

EUR dropped slightly against most other major currencies in the European session on Thursday, as market participants digested the outcomes of the European Central Bank's (ECB) meeting and disappointing Q1 GDP data.

As widely expected, the ECB decided to leave key interest rates unchanged at its latest meeting and reiterated it is willing to do more to support the Eurozone economy. It said that conditions on the targeted longer-term refinancing operations (TLTRO) had been further eased and announced the new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) to support liquidity conditions in the euro area financial system. The Bank also stated that the purchases under the new pandemic emergency purchase programme (PEPP) would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions, and the net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. In addition, the ECB said it was fully prepared to increase the size of the PEPP by as much as necessary and for as long as needed.

In the morning, investors received disappointing data from Eurostat, which showed that the euro area's economy contracted more than forecast. According to Eurostat's preliminary estimate, Eurozone's GDP fell 3.8 percent q/q in the first quarter of 2020 after a 0.1 percent q/q advance in the fourth quarter of 2019. This was the steepest quarterly decline since the time series started in 1995 and exceeded economists' forecast of a 3.5 percent q/q decline. In y/y terms, the economy shrank 3.3 percent in the first quarter after growing 1.0 percent in the fourth quarter. This was the sharpest drop since the third quarter of 2009. Economists had forecast that GDP would fall 3.1 percent.