European session review: EUR mixed, as investors digest ECB latest monetary policy statement

EUR traded mixed against its major rivals in the European session on Thursday, following the release of the European Central Bank’s (ECB) monetary policy statement, which provided a revised forward guidance on its interest rates that reflected its recent strategy review. 

At the July gathering, the ECB’s policymakers decided to leave its ultra-easy policy unchanged, as widely expected. The Bank’s main refinancing rate, marginal lending facility rate and the deposit facility rate were maintained at  0.00 percent, 0.25 percent and -0.50 percent, respectively. The officials also repeated that they would continue the purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of EUR1,850 billion until at least the end of March 2022, and that the purchases under the PEPP over the current quarter were expected over the current quarter to be conducted at a significantly higher pace than during the first months of the year. In addition, the ECB’s staff pledged that net purchases under the asset purchase programme (APP) would continue at a monthly pace of EUR20 billion and to continue to provide ample liquidity through its refinancing operations (TLTRO III).

The key issue was a change to the ECB’s forward guidance on rates that followed after the Bank had upgraded its inflation target to  “a symmetric 2% inflation target over the medium term” at its recent strategy review earlier this month. 

The latest statement said that ECB now expects its key interest rates to remain “at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.” It was also noted that “this may also imply a transitory period in which inflation is moderately above target.”

Market participants’ attention is now turning towards the press conference by the ECB’s President Christine Lagar, which is due at 12:30 GMT.