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Highlights from the ECB Press Conference: What impact did Monetary Policy have on the Markets?

September 12, 2020
by Joseph Jeffriess, Market Analyst

The main focus this week in terms of economic data has been around the European Central Bank’s statement and press conference. Expectations before the press conference were around the ECB holding its rates. This was most definitely the case when Christine Lagarde, President of the ECB, announced that key interest rates would remain to be unchanged.

However, traders were looking for statements around stimulus details and hints about future policy. The data flowing in since the last MPC meeting back in July suggested a strong rebound, with the manufacturing sector continuing to improve but given the ongoing difficulties the pandemic brings to global economies, the services sector is just another hit and has slowed recently across Europe. This and other factors, including poor consumer spending and business investment pushed the ECB to decide that monetary policy remained to be a necessity.

Continuing purchases under the pandemic emergency purchase programme (PEPP) was mentioned in the press conference. The overall total of this amounted to 1,350 billion Euros. The PEPP was established to ease the negative effects of the pandemic on the projected path of inflation. Lagarde stated that this programme will most likely continue to the end of June 2021, or until the Governing Council judges make a decision that the coronavirus crisis has come to an end. The asset purchasing programme also set in place will continue at 20 million Euros on a monthly basis, along with the additional 120 billion euros, (this figure being temporary). 

The overall sentiment derived from the press conference seemed to be optimistic so how did this affect the FX market?

Euro fails to hold onto gains 

After the ECB press conference, the Euro soared above 1.19. Traders expected monetary policy to be more dovish. Lagarde didn’t appear to be too concerned causing investor fears to rise. 

ECB also raised its GDP forecasts. It points to the central bank being confidence in the recovery of its economy post COVID. This eased worries as initially due to a low CPI report, investors forecasted the ECB lowering its inflation projections. 

Despite the optimistic outlook, there is still uncertainty ahead, and stimulus will be needed for the foreseeable future. Even though there has been a reversal in the Euro on the back of the announcement, it may not solely point to the monetary policy. It could also have something to do with the worries around the latest Brexit chaos. We will have to keep an eye on EUR performance against the GBP, JPY and USD.

All times are AEDT.