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European Central Bank on a Policy Meet

The European Central Bank should offer an economic stimulus in the light of COVID-19 outbreak. It could lower a key interest rate below zero, ease access to cheap credit, and increase its purchases of bonds.

The strong possibility of Europe sliding into recession has led to this expectation. Its financial & FX markets have fallen over the impact of the virus outbreak on the economy. Moreover, the US decision to restrict travel from 26 European countries has also deepened concerns.

Twenty-five seat governing council members attended the bank’s policy meeting with several members participating by a remote conference.

Among them was the head of the Italian Central Bank Ignazio Visco since his country has restricted travel movement. The central bank governors of Portugal, Latvia, Lithuania and Estonia have also taken part remotely.

European Central Bank Policy Decision and Euro Movement

The euro to pound exchange sees more solid gains coming from a big part of the EUR/GBP exchange rate’s advances. However, the upcoming European Central Bank policy decision could lead to a shift in the euro movement.

EUR/GBP opened this week at 0.8652 from a four-month high of 0.8835 earlier. Euro exchange rates continue advances despite ECB anticipation. The euro remains appealing in the face of the COVID-19 outbreak.

Further easing expectations from the ECB is lower than rate cut bets on other central banks. Pound exchange rates struggle to capitalize on stimulus plans. The stimulus gave the pound a brief boost. However, with the declaration of the coronavirus as a global pandemic, risk aversion remains, and investors preferred the euro over the pound.

 

The USD Struggled to Gain on the Euro

As markets await European Central Bank interest rate decision, EUR/US Dollar holds steady today trading around $1.126. It could hold its position today as US coronavirus fears expected to get worse. Fiscal stimulus to boost Europe’s economy could uplift for the single currency.

In earlier news, EUR/USD exchange rate edged higher by 0.3% as COVID-19 weakens the US dollar. In forex trading, the pair was at $1.136. Loss in US bond yields and concerns over a possible rate cut from the federal reserve hurt the greenback. The negative impact of the virus outbreak has kept the US dollar subdued against the euro.

William Dunkelberg, the Chief Economist at NFIB, said February was another historically strong month for the small business economy. However, it is worthless that nearly all the survey responses were collected before the coronavirus outbreak and Federal Reserve rate cut. He said business is good, but the coronavirus outbreak remains the big unknown.

In the wake of Italy’s quarantines to prevent the spread of the coronavirus, the EUR/USD is likely to show increasing volatility in forex.

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