Euro Exchange Rate and Analyst Reactions to June ECB Policy Decision & Press Conference

As expected the European Central Bank has left policy unchanged at their meeting held in Vienna.

The Governing Council of the ECB has kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40% respectively.

Regarding non-standard monetary policy measures, on 8 June the Eurosystem will start making purchases under its corporate sector purchase programme (CSPP).

Moreover, starting on 22 June, it will conduct the first operation in its new series of targeted longer-term refinancing operations.

Main Points

  • ECB lifts 2016 Eurozone GDP growth forecast to 1.6% (from 1.4%).
  • Growth still seen at 1.7% in 2017.
  • 2018 growth trimmed to 1.7% (1.8% previously)
  • Inflation revised up for 2016 based on recent oil price increases. Up to 0.2% from a previous 0.1%
  • Inflation forecast unchanged in 2017 at 1.3%
  • Inflation forecast for 2018 kept at 1.6%
  • Interest rates will remain low or move lower in the period ahead

On the issue of the UK’s EU referendum, President Draghi comments that the UK and Eurozone are mutually beneficial. Darghi says explicitly that it is the ECB’s belief that the UK should remain in the European Union saying both parties will benefit.

The ECB stands ready to act should financial conditions tighten significantly in the event of a UK exit from the Eurozone.

Reactions: Euro Exchange Rates

The euro is mixed with losses seen against pound sterling. However, we would argue that for this pair the EU referendum remains a dominant factor and the ECB would therefore likely be ignored. Against the dollar and other currencies the euro is higher confirming markets liked the upgrade to inflation forecasts.

Pound to euro rate - 1.2918, up 0.24%

Euro to dollar rate - 1.1199, up 0.10%

Euro to Australian dollar rate - 1.5525, up 0.7%

Euro to Canadian dollar rate - 1.4661, up 0.22%

Reactions: Analysts

  • Lloyds Commercial Banking:

"ECB President Draghi sounded somewhat more upbeat on the economic outlook and stated in particular that ECB measures are making a difference. He also noted, however, that the balance of risks were still skewed to the downside, but suggested they were less skewed than previously."

  • Alex Lydall, Senior Sales Trader at Foenix Partners:

"He offered up a glimmer of hope by raising growth forecasts to 1.6% (from 1.4%) for 2016, but one would assume the market will be less-than-convinced by a mere positive growth forecast in the bigger picture. Further claims of no wage or price deterioration will also raise eyebrows for investors as deflationary territory still appears to not be improving."

  • Kathy Lien at BK Asset Management:

"Between the ECB's dovish bias and their upgraded growth forecasts, the EUR/USD remained confined between its 1.1100 to 1.1250 trading range. A break of this range is now up to the U.S. non-farm payrolls report."