ECB to Announce Lending Results

The dollar edged lower in early European forex trading on Thursday, ahead of two major monetary developments in Europe.

The European Central Bank will announce the results of its long-term lending operation. It is the first at which banks can borrow at the new lower limit of as low as 1%.

There are doubts over the effectiveness of negative interest rates. So, a high take-up would constitute a vote of confidence in the ECB’s ability to keep supporting the economy. This is through monetary policy (and vice versa).

Moreover, ECB board member Isabel Schnabel trailed expectations of around 1.4 trillion euros in demand.

The Bank of England’s policy announcement will follow the TLTRO results.

Forex Expects ECB to Boost Easing Program 

The sterling edged lower in early forex trading on Thursday, amid expectations that the ECB will boost its quantitative easing program. It will be boost by between 100 and 150 billion pounds.

The U.K. economy has been particularly hard hit by the coronavirus pandemic. Forecasts show it will shrink the G7 economies in 2020 by the Organization for Economic Cooperation and Development.

Analysts at ING said their economist thinks the QE target will rise by 150 billion pounds. This is compared to a consensus of only 100 billion pounds.

Their expectation is driven in part by practical consideration. If purchases continue at the current pace, they will reach the target around the September meeting. This leaves the MPC in a position to take a rushed decision after the summer.

Meanwhile in forex news, GBP/USD was down 0.1% to 1.2538, while EUR/GBP was up 0.2% to 0.8974.

The dollar index dropped 0.1% at 97.013 while EUR/USD rose 0.1% to 1.1251. USD/JPY fell 0.1% to 106.86, while the risk-sensitive AUD/USD dropped 0.2% to 0.6867.

Norway’s central bank is also meeting later on Thursday. It is widely expected to keep its benchmark interest rates unchanged at 0.0%.

Analysts at Danske Bank said developments since the May meeting have clearly come out on the upside. At the very least the downside risk is much less.

They, therefore, expect Norges Bank to revise its projections upwards. The accompanying interest rate path will show a gradual rise in the policy rates from the end of 2022.

FX news reports USD/NOK was up 0.1% to 9.5286 and EUR/NOK rose 0.1% to 10.722.