March 24, 2023
Euro Remains Stable ahead of ECB Stimulus

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On Thursday, the Euro managed to stand its ground before the European Central Bank (ECB) unveiled its fresh stimulus measures. In contrast, the British pound declined after the extension of post-Brexit talks until the weekend with the aim of finding the ever-elusive breakthrough. In recent weeks, the ECB officials have made it clear that the backbone of their policy measures would be formed by more subsidized loans for banks in the long-term and a bigger PEPP (Pandemic Emergency Purchase Programme). Economists are expecting an expansion in the 1.35 trillion euro program to at least 500 billion euros, with a six-month extension in its duration till the end of 2022. 

The risks are skewed for a longer and bigger extension. Market analysts said that even if these adjustments are made, they are unlikely to have any significant impact on the euro, even if they turn out to be a bit more pronounced than the expectations of the market. They went on to say that the currency would only go under pressure when there is an unexpected move, such as a rate cut. Another possible surprise development would be if Christine Lagarde, the President of the ECB, takes a ‘bazooka’ stance against the recent increase in the euro, as she is also scheduled for a news conference later in the day after the ECB meeting.

The euro had been trading slightly up against the dollar at 0800 GMT, as it climbed by 0.04% to reach $1.2086. However, it had climbed by 0.7% against the pound to reach 90.80 pence, while similar losses were experienced by sterling against the dollar, as it fell to $1.3317. Overnight, the British currency slipped after the European Commission’s President Ursula von der Leyen and Britain’s Prime Minister, Boris Johnson, stated that negotiators had till the end of the weekend to figure out if a trade pact can be made after they had failed to bridge the gap themselves. 

Dominic Raab, the Foreign Secretary, said that even though there were major points of differences, there was still some scope to continue the talks. Andrew Baily, the Governor for the Bank of England said that a no-deal Brexit would inflict a lot more damage to Britain’s economy than the coronavirus pandemic, and the impact of the changes will be felt for decades. Elsewhere, there was a 0.44% increase in the Australian dollar, as it reached $0.7450 and close to the two-and-a-half-year highs that it had reached on Wednesday. 

The offshore Chinese yuan had also been hovering at below its high of two-and-a-half years on Wednesday for trading at $6.5385. There was a 0.3% increase in the dollar for it to reach 104.55 yen. The US dollar, which tends to slip when the risk appetite is strong, was flat against a basket of some major currencies, but firm as a whole, as agreement over a US stimulus remained quite elusive, with counterproposals and proposals on coronavirus aid package going on about in the US Capitol.

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