On Thursday, the dollar strengthened. It reversed its weakening trend of the past seven days. Ahead of a European Central Bank meeting, the euro slipped. At this meeting, policymakers could step up to discuss stimulus measures. The European Central Bank will most probably increase the size of its $840 billion (750 billion euro) Pandemic Emergency Purchase Program. This is to support the weakest economies in Europe. Nevertheless, some investors think that will happen at the meeting in July rather than today.
Adam Cole is chief currency strategist at RBC Capital Markets. He said that, for the euro, the direct implications of increasing the size of the Pandemic Emergency Purchase Program are limited. Nevertheless, the implied improvement in the responsiveness of the policy is certain. This is especially true in combination with the development of the recovery fund.
Thu Lan Nguyen is Commerzbank’s EM and FX analyst. She said that any further gains for the euro could be limited by a large amount of positive economic news. Moreover, investors have already digested that news.
Euro and Others
Nguyen said that the most critical question is whether the crisis will leave permanent damage. Moreover, the problem is, if it does, how prominent it is going to be.
At 0720 GMT, the euro was at $1.1202. It is retreating from three-months highs and is down by 0.3%. Nevertheless, recently, proposals for a 750-billion-euro EU-wide recovery fund supported the common currency. This fund includes loans and grants. Moreover, policymakers intend it to spread the burden of coronavirus in hard-hit countries such as Spain and Italy.
The slow progress of the European Union’s effort for finalizing its recovery fund proposal is one argument against having the ECB announcing more policy easing. The European Central Bank can hold out to keep up the pressure on the European Union’s political leaders.
At 1145, the central bank will deliver its policy decision. Moreover, Christine Lagarde, ECB President, will hold a news conference at 1230 GMT.
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