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ECB Market News

Weekly Recap: ECB and RBA stick to the Accommodative Policies

It has been a notably quiet trading week with the absence of big data releases and major events except for the ECB Meeting. Here is a snap of this week’s events: 

  • US unemployment claims jumped to its highest levels in 2 months. 
  • ECB vows easing stance for a long time. 
  • RBA Meeting Minutes affirms no rate hike until 2024. 

USD

Official data released on Thursday showed that weekly unemployment claims rose by 419K persons last week, much higher than market expectations of 350K. The reading marks the highest level in 2 months. The 4-week claims average also increased by 750 to a total of 385,250 claim. 

The dollar index (DXY) is trading slightly higher through the week, keeping weekly gains of more than 0.30%. 

On a side note, the US President Joe Biden has stated through a press conference about the economic recovery and progress in the labor market that Most price increases are expected to be temporary. This reflects the consistency between government and Fed perception of current inflation rises. The Federal Reserve expects the end of the pandemic to temporarily push up inflation this year. Fed’s officials increased their median forecast for inflation this year. Consumer prices in the fourth quarter of 2021 are seen at 3.4% from a year before. That is up from their 2.4% forecast in March. This came after high inflation readings that showed the 12-month prices rose by 5% in May, the highest level since 2008.

EUR 

In its July meeting, The European Central Bank revised its forward guidance on interest rates. Now the bank is expecting interest rates to remain at their present or even “lower levels” until inflation reaches 2% in a sustainable manner. The ECB sees that achieved progress in underlying inflation ensures prices to be stabilizing at 2% over the medium term. The statement came two weeks after the ECB adopted a new strategy that keeps its inflation target to 2%. This was the first change in ECB’s strategy for almost two decades.

Net purchases under the APP will continue at a monthly pace of €20 billion. “The Governing Council continues to expect purchases under the PEPP over the current quarter to be conducted at a significantly higher pace than during the first months of the year.” The ECB will also continue purchasing 1.85 trillion euros under PEPP until at least the end of March 2022 and, or until it judges that the coronavirus crisis phase is over. 

The bank left interest rates unchanged, with the rate on the main deposit facility remaining at -0.5%, the benchmark refinancing rate at 0% and the marginal lending facility at 0.25%.

AUD

The RBA meeting minutes released earlier this week reaffirms the bank’s central scenario that no rate hike is expected before 2024. The bank is committed to maintain its highly supportive monetary policy until conditions for hiking rates are met. These conditions include a tighter labour market that generates higher wages. The bank perceives that nominal economic activity hadn’t been positive. However, the faster than expected recovery in the labor market and encouraging economic conditions caused the members to adjust weekly bond purchases from $5 billion to $4 billion. While a pick-up in inflation and wages growth is expected, the bank expects any rise to be only gradual and modest.


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