Dipo Olowookere
The European Central Bank (ECB) has announced this week that they will be leaving their monetary policy within the Eurozone unchanged, in what has been dubbed by many as a ‘wait and see’ policy.
They have left interest rates the same and are choosing not to make any changes to their existing stimulus programme either.
This is good news for both forex trading experts and amateurs alike who have been waiting to see which way the ECB would jump before making new investments, both in Europe and globally.
The interest rate on its main refinancing operations stands at 0%, and the interest rates on its marginal lending facility and deposit facility remain at 0.25% and -0.50% respectively.
These unprecedently low-interest rates are as a response to the contraction of GDP within the Eurozone which, this year, is forecast to be a 8.7% contraction on last year’s rates.
However, the IMF has warned that this figure may be optimistic and the region could actually shrink as much as 10.2% in 2020 if we don’t see a sudden upturn in the market.
A Lack of Demand
ECB Chief Economist Philip Lane announced in a speech on the issue last month that, “weak demand, continued supply constraints and ongoing social distancing restrictions are hampering the normalization of economic activity.”
This contraction in current economic activity is, in part, what has driven the decision not to make any adjustments to their current economic policy.
The European Central Bank has not made clear how long these current measures will be in place for, meaning that it is possible that further ECB action and monetary policy changes could be made later in the year.
Euro Forecast Unphased
The July ECB meeting has certainly not phased the market , with the tone of the meeting being considered cautiously optimistic by commentators. This, in turn, enabled the Euro rate to hold steady with almost no fluctuation as a result of the European Central Bank decision. As the Euro’s position remains undeterred, traders continue to remain level-headed.
Stability is the main buzzword here, both with the ECB monetary policy remaining stable and the Euro rate remaining stable. That stability is allowing Bull moves to continue unphased, helping to continue to drive market recovery across the Euro zone.
The next hurdle for forex investors in the Eurozone will be the announcement of individual fiscal recovery programmes from leaders across the Eurozone.
Ensuring that this response is both ambitious and well-coordinated is what the market needs to see in order to continue its upwards trajectory.
The upcoming European Council Summit is expected to provide the extra reassurance that the markets need, balancing out the ‘wait and see’ policy of the ECB with decisive action and a cash injection that many Eurozone countries are relying on.
We are now in our own ‘wait and see’ position, where we will have to wait to determine what impact the decisions of the summit will have on wider markets.
