EUR / USD: ECB Policy Meeting Could Boost Market Further Than Previously Expected

Recently, the euro has underperformed other G10 currencies, MUFG Bank analysts say. They warn that the meeting of the Central European Bank (ECB) next week could boost the market more than previously expected.

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“The main risk event for the euro in the next week will be the last policy meeting of the ECB. While the upcoming ECB policy meeting was previously viewed as a non-event for the markets after the ECB just announced an extension of faster QE purchases in the third quarter at its last meeting on June 10, there is now a higher risk that it shows that the market moves more. “

“However, there is a material risk that the ECB will delay the announcement of these policy steps until more data is available in September. The new policy framework gives them a justification to announce political actions earlier if they want to. “

“We expect the ECB to maintain a cautiously optimistic outlook for the economic recovery in the euro zone, but we continue to recognize the downside risks posed by the Delta variant spread.”

“A decisive policy action by the ECB to support the new policy framework could trigger a further selloff of the EUR next week at a time when other major central banks (BoE and Fed) are closing in on raising rates. Failure to act would provide some relief to the EUR. “

“However, the risks for next week are greater that there will be a more lasting impact on the EUR, as this meeting follows the updated review of the monetary policy strategy and the President of the ECB, Lagarde, has clearly indicated that they will make changes, at least in orientation and depending on how explicit those changes are. changes will determine impact. Any shock or surprise is likely to lead to a downward movement of the EUR. “