- The European Central Bank is expected to reduce the key rates in 25 basic points on Thursday.
- The approach will be in the language of the ECB statement and the comments of President Christine Lagarde.
- The EUR/USD torque is prepared for intense volatility after the ECB policy ads.
The European Central Bank (ECB) will announce its decision about the interest rates of April on Thursday at 12:15 GMT. The markets expect that the Central Bank reduces key rates for the sixth consecutive time.
The president of the ECB, Christine Lagarde, will offer a press conference at 12:45 GMT. In this conference, he will present the statement prepared on monetary policy and answer media questions.
The euro (EUR) remains prepared for a great reaction to the ECB ads compared to the US dollar (USD).
What to expect from the decision about the interest rates of the European Central Bank?
The ECB is ready to deliver another 25 basic points cut (BPS) after the April policy meeting, reducing the reference rate of the ease of deposit to 2.25% from 2.5%, with the disinflation process remaining on the way.
The data published by Eurostat showed that the harmonized index of consumer prices (HICP) in the eurozone increased a 2.2% year -on -year (yoy) in March, after registering an increase of 2.3% in February. In addition, annual underlying HICP inflation was softened to 2.4% from 2.6% in the same period.
Investors will examine the policy declaration to see how the ECB expects the new United States commercial regime to implement the perspectives of inflation and growth in the European Union (EU).
By anticipating the April of the ECB, TD Securities analysts said they forecast a 25 BPS reduction in the rates. “The key approach to the press conference should be in the economic uncertainty related to commercial policies and global demand in the future. As such, the writing on the future trajectory of the rates will probably be vague and emphasize the dependence of the data,” the analysts said.
At the beginning of the month, the Governing Council member of the ECB, Gediminas Šimkus, argued that US tariff decisions justify a more accommodating monetary policy and added that a 25 BPS cut in April will be needed. Although the US and the EU agreed a 90 -day break in reciprocal tariffs since then, there are still many uncertainties about how commercial relations between the EU and the US will be after the grace period. Citing people familiar with discussions, Bloomberg reported earlier this week that the EU expected most of the US import tariffs.
How could the ECB meeting impact on the EUR/USD?
The EUR/USD won more than 4% in March and has already risen around 5% since the beginning of April. During this period, the intense sales pressure surrounding the US dollar (USD) due to the growing fears about an economic deceleration as a result of the deepening of commercial conflicts fueled the recovery of the torque.
In the event that the ECB’s policy declaration, or President Lagarde, suggests that they continue to trust that the disinflation process resumes, despite the tariff uncertainty, investors could see this as a sign of a greater relief of politics in the near future. A pessimistic tone about economic perspectives could reaffirm this vision. In this scenario, the euro could be under sale with the immediate reaction, opening the door to a downward correction in the EUR/USD.
On the other hand, the euro could continue to surpass the USD if the ECB puts more emphasis on inflationary risks and indicates a possible pause in fees cuts, citing the need for more time to assess the impact of tariffs.
Eren Sengezer, main analyst of the European session at FXSTRET, offers a brief technical perspective for the EUR/USD:
“The EUR/USD is negotiated near the upper limit of an ascending regression channel of two months and the indicator of the Relative Force Index (RSI) in the daily chart remains above 70, which suggests that the torque could experience a technical correction before the next climb.”
“Down, the midpoint of the ascending channel is aligned as a key support level in 1,1200. If the EUR/USD closes below this level, 1,1100 (static level) could be seen as an intermediate support before 1.1000 (psychological level, simple mobile medium of 20 days). Looking to the north, resistances could be identified in 1,1435 (upper limit of the ascending channel), 1,1500 static) and 1,1580 (static level), “Sengezer added.
BCE FAQS
The European Central Bank (ECB), based in Frankfurt (Germany), is the euro zone reserve bank. The ECB sets interest rates and manages the monetary policy of the region.
The main mandate of the ECB is to maintain prices stability, which means maintaining inflation around 2%. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates often translate into a stronger euro, and vice versa.
The BCE Governing Council adopts monetary policy decisions in meetings that are held eight times a year. The decisions are adopted by the directors of the national banks of the euro zone and six permanent members, including the president of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can launch a political tool called Quantitative Easing (quantitative relaxation). The QE is the process by which the ECB prints euros and uses them to buy assets (normally state or business bonds) to banks and other financial institutions. The result is usually a weaker euro ..
The QE is a last resort when it is unlikely that a simple decrease in interest rates achieves the price stability objective. The ECB used it during the great financial crisis of 2009-11, in 2015 when inflation remained stubbornly low, as well as during the Coronavirus pandemic.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the European Central Bank (ECB) buys state and business bonds from financial institutions to provide liquidity, in the QT the ECB stops buying more bonds and stops reinvesting the main one that overcomes the bonds it already has. It is usually positive (or bullish) for the euro.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
