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During its meeting in April, the European Central Bank kept its policy unchanged, leaving rates at the same levels: key - at 0.00%, deposit rate - at -0.50%, margin - at 0.25%.
The ECB said in a statement that incoming economic data had increased the likelihood that the central bank would complete its bond purchases in the third quarter. The bank noted that purchases will be curtailed gradually: from 40 billion euros in April to 30 billion euros in May and 20 billion euros in June.
As the head of the ECB, Christine Lagarde, said during a press conference, "the increase in inflation is mainly due to rising energy prices", although "the situation with core inflation is not yet clear."
Two weeks earlier, Christine Lagarde confirmed that the Asset Purchase Program (APP) should be completed at the beginning of the third quarter. “Our inflation forecasts are increasingly indicating that inflation is at the target level in the medium term. It is increasingly unlikely that the disinflationary momentum of the past decade will return.”
Her statements were confirmed by the statements of other representatives of the ECB leadership. For example, Louis de Guindos, vice president of the European Central Bank, said that “inflation is likely to remain in the 4-5% range at the end of the year in the Eurozone”, and “the debt purchase program, the asset purchase program (APP) will probably end in July."
The euro then rose after Lagarde's statements, and today a new portion of verbal intervention on her part again pushed the euro and the EUR/USD pair to growth (to the mark of 1.0686). Christine Lagarde said this morning that "we (at the ECB) will be able to put negative rates behind us by the end of the third quarter." She also expects the APP (Quantitative Easing Emergency) program to end early in the third quarter, and “if inflation stabilizes around 2% over the medium term, a gradual further normalization towards a neutral rate would be appropriate. The ECB will take all necessary steps to this end.”
The EUR/USD continues to rise today, also ending in positive territory last week (against the weakening dollar), while market participants continue to assess how actively the Federal Reserve will raise interest rates to tame rising inflation.
At the time of publication of this article, futures for the DXY dollar index are near 102.17, 289 points below the local maximum (since January 2003) of 105.06, reached in the first ten days of May.
It is possible that the growth of EUR/USD and the weakening of the dollar may continue until the publication on Wednesday (at 18:00 GMT) of the minutes from the May Fed meeting (“FOMC minutes”). Market volatility will increase, and the dollar may sharply strengthen if the text of the minutes contains new information regarding the Fed's plans for monetary policy. The harsh rhetoric of the Fed leaders will push the dollar to further growth. Conversely, the soft tone of the protocols will have a negative impact on the US dollar.
