The Euro Pops on ECB Statement

Posted Thursday, January 21, 2021 by
Skerdian Meta • 2 min read

The European Central Bank held their monthly meeting a while ago. They kept the same stance regarding the monetary policy, but there were a few comments added to the statement, which sent the Euro popping 30 pips higher. Although, nothing really changes, so EUR/USD has returned back down now.

ECB Monetary Policy

Deposit facility rate -0.50%
Main refinancing rate 0.00%
Marginal lending facility 0.25%

ECB expects the key rates to remain at their present or lower levels until inflation outlook robustly converge to a level sufficiently close to, but below, 2%
ECB will continue the purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion
The purchases under the PEPP will be conducted to preserve favourable financing conditions over the pandemic period
The envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation
ECB stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner
Full statement

The details and the language in the statement is pretty much a reiteration of their current stance and is no different from after the “recalibration” in December.

ECB Adds A Small Part to the Statement

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.”

That’s pretty much the only thing that stands out in my view from the statement. It’s a slight concession but also comes with a caveat that the envelope could also be recalibrated to help deal with any negative inflation developments. This isn’t anything new despite it being new to the statement, as it is merely a reiteration of the stance of the collective minds at the central bank since December.

Laggarde Press Conference

Eurozone contracted in the fourth quarter
Incoming data confirm previous near-term assessment
ECB ready to adjust all instruments as needed
ECB monitoring FX for impact on inflation
Uncertainty remains high
Inflation remains very low
Downside risks to short term outlook, but less pronounced
Renewed infections and lockdowns are disrupting activity
interest rates to remain at 0 until at least inflation ‘robustly converges’ to our target of close to, but below 2%
Sees upward pressure on inflation over medium term once the pandemic fades
Market-based expectations of inflation expectations have increased slightly