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As it’s usually the case after an ECB policy meeting, policymakers are out in full force sharing their views about monetary policy and the economy. As a reminder, the ECB yesterday held interest rates steady as widely expected and kept everything unchanged. It was a non-event basically. The focus was mainly on President Lagarde and comments on the euro after it broke through the 1.20 level against the US Dollar.Lagarde just aknowledged euro’s gains since last March and reiterated they don’t have an exchange rate target. She added though that a stronger euro could bring inflation down more than expected.ECB’s Stournaras this morning said that the economy is in stable equilibrium and they are monitoring exchange rates. He added that euro’s increase hasn’t been dramatic and that they are not really watching specific exchange rate levels. He also dismissed the slightly lower than expected January inflation data saying that it’s just one data point. This is something that ECB’s Escriva echoed by reiterating that inflation is at target and inflation expectations are anchored. Even ECB’s Villeroy, who’s one of the most dovish members, confirmed that they are in good place on inflation although he added that downside risks are probably more significant. He also mentioned that ECB has no FX target although it’s important for activity.ECB’s Kazaks mentioned that “big and rapid” strengthening in the euro could warrant a policy response by the ECB. This is exactly the reason why we got the “jawboning” last week after the EUR/USD rate went from 1.1576 to 1.2082 in less than two weeks. Policymakers don’t like fast, one-sided moves.They are now clearly sounding less concerned after the euro eased back to 1.18 against the US Dollar. The line in the sand remains the 1.20 level but it will need to be followed by softer inflation data to trigger rate cut expectations.
This article was written by Giuseppe Dellamotta at investinglive.com.
đź’ˇ DMK Insight
So the ECB just kept rates steady, and here’s why that matters: traders often look for clues in policymakers’ comments for future moves. With no changes announced, the market’s attention shifts to the nuances in the statements made by ECB officials. These discussions can hint at the central bank’s stance on inflation and growth, which are crucial for currency traders and investors alike. Right now, the euro might see some volatility as traders digest these comments. If any official hints at a shift in policy direction, it could lead to significant moves in the EUR/USD pair. For instance, if there’s a suggestion of tightening due to rising inflation, we could see the euro strengthen. Conversely, if the tone remains dovish, it might weigh on the euro. Keep an eye on the daily chart for the EUR/USD; a break below recent support levels could signal further downside. Here’s the thing: while the ECB’s decision was expected, the real story lies in how the market interprets the comments that follow. Watch for any shifts in sentiment, as they could create trading opportunities in both forex and related markets like bonds.
đź“® Takeaway
Monitor ECB officials’ comments closely for hints on future policy shifts, especially regarding inflation, as they could impact the EUR/USD significantly.
