Aerial view of Frankfurt dominated by the new headquarters of the ECB, Germany. Image source: dudlajzov © 123RF.com
The Governing Council of the European Central Bank met today and expectedly decided to leave the key interest rates unchanged at their near-negative levels. The interest rate on the main refinancing operations is left at 0.00 per cent.
While the Council voted against scaling up its asset purchase facility at the present time, leaving the Pandemic Emergency Purchase Programme (PEPP) with its current envelope of 1.850 billion euro unchanged, it expects "purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year".
Unsurprisingly, the Council views muted inflationary pressures as a key impediment to faster growth. This is what necessitates continued support from the central bank. Price stability in the Euro Area remains subdued due to dampened sentiment.
Euro Area Inflation Rate. Image source: TradingEconomics.com
Headline inflation in the Eurozone steadies around 0.9 per cent, which is way below ECB's longer-term inflationary goals. The pace of inflationary growth in the bloc continues to be outstripped by global trends. Meanwhile, the Council stated further that:
" The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation."
The monetary policy decision did not boost the euro, which continues to retreat against other major currencies. As can be seen on the 4H chart below, the single currency is still struggling against the British pound, which was reinvigorated by BOE Governor Bailey's recent remarks.
For the time being, the EURGBP is consolidating above the major support level at 0.85500, which serves the role of a lower boundary of a developing Triangle. While the MACD indicator registered a bullish crossover recently, the underlying sentiment remains ostensibly bearish-oriented.
This is further demonstrated by the fact that the price action remains trading below the 50-day MA (in green) and the 100-day MA (in blue). A potential bullish pullback towards the minor resistance at 0.86400, which is currently converging with the Triangle's upper boundary, can occur before the development of the broader downtrend is resumed.
EURGBP 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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