London RationalFX

RationalFX: The euro continues to hold

RationalFX: The euro remains well supported against the dollar and is likely to remain that way until this week’s key European Central bank’s policy announcement.

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Thursday’s policy announcement will reveal whether the ECB will look to wind down parts of their quantitative easing program. The market expects the ECB to lag both the Bank of England and US Federal Reserve in ending quantitative easing and then raising interest rates. This assumption has led to euro gains being capped against both the pound and dollar.

If the ECB strikes a dovish tone on the Eurozone’s economic outlook, and suggests it is ready to begin closing down PEPP (Pandemic Emergency Purchase Programme), the euro could benefit. The Eurozone’s economy continues to recover and inflation rise amidst falling levels of Covid-19 and associated restrictions, which represents a positive shift in fortunes for the Eurozone’s economy which has lagged that of the US for much of 2021.

Some analysts are predicting that ECB President Christine Lagarde and her fellow board members could yet push back against the notion that the economy requires a reduction in support. This wouldn’t be a surprise as it is likely that high inflation will be temporary and will fall back in line with its target.

Key announcements

8:30: GBP – MPC member Saunders speaks

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