Christine Lagarde and Jerome Powell. Image source: World Economic Forum / Official FED Photо
This week was marked by two prominent events – the monetary policy meetings of the European Central Bank's Governing Council and the Federal Reserve's Monetary Policy Committee (MPC).
On Wednesday, the MPC of the FED decided to keep the interest rate unchanged at 0.25 per cent. It thereby maintains the already loose and accommodative monetary policy in light of the coronavirus fallout that continues to impede the economic activity in the US and elsewhere.
In the post-decision statement, Jerome Powell, the Chair of the FED, and his colleagues in the Committee described and evaluated the risks to the American economy poised by the prolongation of the healthcare crisis.
The Committee's ultimate decision mostly met the market's initial expectations, which were not envisioning any major changes to the monetary policy at the present moment. That is so due to the still relatively early stages in the development of the economic crunch.
Even still, the Committee was neither hawkish nor dovish in its rhetoric, which underscored its vigilance and readiness to react as the situation continues to develop. Consequently, the markets did not react sharply to the neutral stance adopted by the FED.
" The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy."
The Governing Council of the ECB, in turn, adopted a more pro-active stance yesterday during its monetary policy meeting. It too decided to keep the primary interest rate unchanged from its current level of 0.00 per cent; however, the Council announced it would be increasing the scope of its asset-purchasing program.
In addition to the envelope of 750-billion-euro relief package, which was announced in Late-March as the Council's pandemic emergency purchase program (PEPP), yesterday the Governing Council reconciled a temporary envelope of 120 billion-euros. Moreover:
"A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) will be conducted to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. The PELTROs consist of seven additional refinancing operations commencing in May 2020 and maturing in a staggered sequence between July and September 2021 in line with the duration of the collateral easing measures."
The Governing Council of the ECB has deemed it necessary to increase the scope and duration of its liquidity-bolstering programs, which underlines the severity of the coronavirus fallout on the European economic activity.
The market has broadly received the news with enthusiasm on investors' anticipations for a quicker economic recovery now that most European states are drawing out plans for gradually reopening their economies. This process is likely to be supported by ECB's now more accommodative monetary policy.
Because of this heightened investors' enthusiasm in the Eurozone, the single currency advanced against the greenback with more than 1.50 per cent over the last several trading days.
The EURUSD pair is currently attempting to break out above the upper edge of a large wedge pattern, represented on the daily price chart below.
EURUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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