The rally has been continuing on the global stock markets since Tuesday, based on sustained hopes that the ongoing vaccination process will stop the problem of coronavirus, as well as the positive corporate reporting season about the prospects for national economies.
Today, the market will focus on the ECB's final decision on monetary policy. The market believes that the European regulator may also adjust its views on the monetary rate of the near future in view of the ongoing COVID-19 pandemic and the risk of an earlier change in the Fed's monetary policy. So far, it can be recalled that the rate on deposit funds remains at the level of -0.50% since September 2019. The rate of lending on margin is 0.25%.
What is expected from the ECB?
The market believes that the outcome of today's meeting will be the ECB's decision to leave the main interest rate at zero. Back in January 2016, the European regulator had to raise the rate from the level of 0.05% to zero amid the risk of deflation.
We believe that the growing interest in this meeting is based on the fact that in the conditions of the Fed's upcoming tightening of monetary policy, the ECB will also have to do something. And although there is no problem of high inflation in Europe, as in the United States based on the latest data (1.9% in the EU against 5.4% in the US), an increase in interest rates overseas will attract capital from Europe, which will support the US economy and not the European one. The ECB will simply have to change its monetary rate as well.
How will the ECB's monetary policy decision affect the euro exchange rate?
We believe that this may have a negative impact on the euro's dynamics if the bank does not say anything in its communique while maintaining the level of interest rates unchanged and C. Lagarde will not talk about the probability of a change in the monetary policy towards tightening in the near future during the press conference.
But if there are hints that monetary policy will change at an earlier date than expected, we will see a sharp increase in the euro rate, which has already been supported in the last two days amid the rising demand for risky assets in the stock markets.
We are closely following the results of the ECB meeting and are already acting on the result.
Forecast of the day:
The EUR/USD pair is trading at the level of 1.1800. A signal about the probability of changes in monetary policy will support the pair, and it may grow first to 1.1850, and then to 1.1880. On the contrary, the absence of which will put pressure on the pair, which may decline to the level of 1.1710.
The GBP/USD pair continues to receive support. Its growth above the level of 1.3740 will lead to testing of 1.3800.