The most highly anticipated economic event for this week is ECB’s monetary policy meeting, which is scheduled to take place on Thursday afternoon.
According to the consensus forecasts, the Monetary Policy Committee (MPC) of the European Central Bank would likely refrain from changing the underlying interest rate, which is currently at 0.00 per cent.
In the monetary policy statement from its previous gathering, which took place on the 23rd of January, the ECB stated that:
“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”
Since then, the price stability in the Eurozone has deteriorated, and headline inflation fell by 0.2 percentage points due to the impact of the coronavirus on local demand. The inflation rate is currently at 1.2 per cent, which is further away from ECB's goals.
Eurozone Inflation Rate. Image source: TradingEconomics.com
Since the last meeting of the MPC, the global economic outlook has deteriorated noticeably, and the negative impact of the coronavirus's spread on the international supply networks has brought about even more detrimental headwinds for the Eurozone.
Other central banks have already decided to cut their underlying interest rates (the FED and RBA), in a bid to negate the economic hit; however, the already much looser monetary policy of the ECB means that it has much narrower leeway for action.
Cutting the level of interest on Thursday would mean implementing negative rates, which would have profound consequences for the European economy, unlike in the US and Australia, where the rates of interest remain positive.
Thereby, Christine Lagarde and the ECB seem short of options in this constantly evolving situation, which would put pressure on the President to come up with an effective solution, and fast.
Meanwhile, the EURGBP is currently consolidating below the major resistance level at 0.87500.
EURGBP 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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