If you’re hoping to grab some pips off the ECB monetary policy announcement this week, here’s what you should know about the top-tier event.
For the newbies out there, make sure you read this lesson on why central bank decisions are a huge deal!
What happened last time?
- ECB kept rates on hold at 0.00% in January
- Focus was on the strategic review to be conducted
- Policy review “will encompass quantitative formulation of price stability and monetary policy toolkit”
The ECB decision in January this year didn’t cause much fanfare in the markets, as the central bank wasn’t really expected to announce big moves then.
As expected, their official statement indicated that:
“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon…”
Policymakers also agreed to maintain the current pace of asset purchases to the tune of 20 billion EUR per month, reinforcing the impact of low interest rates.Much of the market attention was focused on the details of the strategic review of monetary policy to be conducted until the end of the year. Under this review, ECB officials will “take stock of how the monetary policy strategy has supported the fulfillment of the ECB’s mandate under the Treaty over the years and consider whether any elements of the strategy need to be adjusted.”
Policymakers are also set to review the potential side effects of recent monetary policy moves, along with its communication practices.
What’s expected this time?
A lot has changed in the international scene since the earlier ECB announcement and, unless you’ve been living under a rock, you’ve probably heard of a little something called the coronavirus outbreak.What makes this particularly troublesome for the euro zone economy is that the contagion has worsened in Italy, forcing the country to implement a nationwide lockdown, and might have spread through its borders with France and Germany.
Still, some ECB officials, namely Holzmann and Kazimir, have mentioned in speeches last week that the health crisis does not warrant additional stimulus just yet. After all, economic data remains robust and mid-tier reports ahead of the actual ECB announcement could reassure traders that the euro zone could stay resilient.Even so, many are seeing the March ECB decision as a big test for new ECB head Lagarde who is still struggling to unite a divided central bank. Some say that alternatives to an actual rate cut or asset purchases might be unveiled.
If so, these could be enough to assure euro bulls that the central bank is not yet in panic mode and is able to keep enough monetary policy power in its arsenal in case the situation worsens.
Looking for a euro pair to trade for this event? Don’t forget to take note of average EUR volatility when setting exit levels!