After the meeting of the European regulator, the Euro, which was on the verge of falling and rising, rose sharply. The market closely followed the dynamics of the currency not only after the announcement of the ECB's decision but also the day after that. According to experts, further movements of the EUR/USD pair slightly disappointed investors, who expected more drastic measures from the regulator.
Currency strategists explain the rapid rise of the Euro, recorded on the evening of December 10, unjustifiably set high expectations of some market participants. They had expected a significant increase in the emergency bond-buying program, although the regulator expanded it by €1.85 trillion and extended it for the next nine months until March 2022. At the same time, the ECB left the existing interest rate on loans at zero while simultaneously worsening the forecasts for the Eurozone GDP for 2021. According to the updated calculations, the regulator expects GDP growth of only 3.9%, although the previous forecast implied a 5% increase.
According to analysts, it was the excessive greed of investors that pushed the Euro in the EUR/USD pair. However, the next day, the tandem came to balance. Today, on December 11, the EUR/USD pair was trading near 1.2124-1.2125, losing some of the points they gained but there is still hope to conquer new heights.
According to experts, yesterday's meeting had a twofold effect on the market. On the one hand, traders and investors expected further monetary policy easing but the ECB's current strategy was somewhat of a surprise. At the moment, the market is trying to fit its actions into the new realities associated with the new policies. Following the meeting, the ECB increased anti-crisis monetary programs, primarily asset purchases under PEPP (by €0.5 trillion, until March 2022), and also prepared three new TLTRO programs. Their launch is expected next year, experts emphasize. The purpose of the new programs is to effectively refinance current long-term TLTRO loans.
Experts draw attention to an unexpected turn in the ECB's strategy from targeting inflation to financial stability. Such changes did not surprise analysts, since the current actions of the regulator are aimed at a slight weakening of the Euro and this is one of the tasks of the ECB. Increased attention to financial stability has given a new impetus to asset repurchase programs, experts emphasize. As for the forecast for inflation, the regulator estimates that in the next three years it will remain in the range of 1.2%-1.4% and the target level will still remain around 2%.
The Euro was able to benefit from the current situation with a brief strengthening. Experts consider the subsequent decline of the currency to be uncritical since it has many support factors. The main fuel for the Euro is the possibility of further financial stimulation of the Eurozone economy. The EU summit decision was a catalyst for positive sentiment on the currency. Recall that European leaders agreed on a seven-year budget worth €1.8 trillion, of which €750 will go to the needs of the Eurozone countries most affected by the consequences of the COVID-19 pandemic.
Next year, the market does not expect any special surprises from the currency, though anything is possible for the EUR/USD pair. The greenback remains to be a time bomb and its reputation as a global reserve currency is constantly declining. This gives the Euro a chance to rise to new heights and gain a foothold on them according to analysts sum up.