EUR/USD Makes New Lows As ECB Keeps Policy Unchanged

Posted Thursday, April 14, 2022 by
Skerdian Meta • 2 min read

Major central banks have turned hawkish in recent months as inflation increased, while in the last meeting during these last two months, they have picked up the pace of monetary tightening. Most of them have raised interest rates and are preparing to raise them faster as CPI (consumer price index) inflation keeps surging.

In Europe, consumer inflation hit 7.5% in March as last week’s report showed, but the European Central Bank (ECB) is keeping the calm, even with energy prices soaring. They kept deposit rates, refinancing rates and lending rates unchanged, which is discouraging Euro buyers. EUR/USD was trading above 1.09 earlier today, but it has fallen below 1.08 now as sellers pile in. This will keep the Euro bearish, so we will try to sell Euro pairs.

EUR/USD Daily Chart – Reversing Down at the 50 SMA

EUR/USD has printed new lows today after the ECB decision

ECB Monetary Policy Decision – 14 April 2022

Deposit facility rate -0.50%
Main refinancing rate 0.00%
Marginal lending facility 0.25%

Reaffirms that APP purchases will end in Q3
Rate hikes to only come some time after APP purchases end
Rate hikes are to be gradual
Sees rates at present level until inflation meets guidance conditions
Full statement

In essence, there isn’t any change to the policy outlook or main language. So, it is pretty much the status quo.

But there are some slight changes to the forward guidance as the ECB stresses on flexibility when it comes to making any future decisions. That doesn’t sound like a central bank that is posturing to move rather aggressively to counteract inflation.

Here is the paraphrasing in March:

“The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term.”

And here is the one for April today:

“The Governing Council stands ready to adjust all of its instruments within its mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability.”