The European Central Bank will be holding a virtual meeting on Thursday 29, Oct. But experts do not expect any major signals from President Christine Lagarde.
European Central Bank interest rates are expected to remain at 0%. Though not much is expected, the second wave of coronavirus pandemic may bring talks about a further stimulus in the Eurozone.
US Stimulus and Presidential Election are other key drivers of the currency market.
EUR/USD Weakens with Resurging Coronavirus Wave
The resurging coronavirus wave weakens EUR/USD pair.
The second pandemic wave may renew lockdowns, fear consumers in the Euro region, especially in France. Recovery in the region has been slow and uneven. GDP may decline even further with partial and localized lockdown measures resuming again, fear investors. Job losses that are already severe are expected to worsen if lockdown measures take place. Fiscal safety nets have to continue, to keep the economy functioning smoothly, say experts.
Spanish Unemployment Rate has fallen from 15.3% to 16.3%. According to reports released by the National Statistics Institute on Tuesday 27, Oct the number of unemployed in Spain stands at 3.7 million. Many are supported by the furlough scheme, which was brought by the government to provide for job losses.
ECB’s Stimulus Packages
Earlier in July, the European Union brought a 750 billion euros bill to stimulate the shrinking economy. The package was aimed to create more jobs over three years. Thursday’s meeting may not see much of a stimulus from the ECB. However, announcements of a recovery fund can be expected at the December meeting, say analysts. If President Lagarde signals a monetary stimulus by the end of the year, it may raise consumer confidence in the zone.
The collective borrowing of the 750 billion euro recovery plan is a major tool at the disposal of the Eurozone. With more than 50% of the 750 billion euros available for distribution in the form of grants for countries severely hit, it will be a major turning point for Europe, says Lagarde.
The pandemic emergency purchase program (PEPP) launched in March calmed the markets. The next objective is to bring back inflation to pre-pandemic levels. The current low-interest rates are helping the economy. It has increased the volume of lending in the euro area by 3% for households and 7% for firms.
“Our monetary policy toolbox options have not been exhausted”, says Lagarde. “The severity of the shock of the coronavirus pandemic has surprised me most”, she says. The speed and the scale of the shock are unprecedented, says Lagarde, in an interview with Le Monde.
Data This Week on the Eurozone
Consumer confidence has come down in the area with the rising second pandemic wave and lockdown. Data on Economic Confidence in the Eurozone, on Thursday, is predicted to go down from 91.1 to 89.6. Consumer panic is increasing with fresh lockdown measures in the economy. Unemployment data on Friday is expected to rise from 8.1% to 8.2%, while inflation will remain unchanged at -0.3%.
US Dollar Index
The US Dollar has gone below the critical 93 levels. The support at 92.75 and against at 92.50 levels are expected to hold the Dollar Index. However, If the Dollar Index moves past the 93.25 level, it will gain upside momentum and move towards the next level at 93.55, which is also its 50 EMA.
Negotiation on a bill to bring in fiscal stimulus in the US continues unresolved between the US Republicans and Democrats. The election date is on 3 Nov, and a compromise before the elections remains elusive.
EUR/USD Slips Below 1.18 Levels
The EUR/USD currency rate has firmly slipped below critical support at 1.18 levels on Wednesday 28, Oct. The Euro to USD currency par continues its journey downwards, slipping below other supports at 1.1765 and 1.1745. On Wednesday, the Euro to US Dollar was trading at 1.728 levels at 1.15 pm GMT.
The European Central Bank is expected to keep interest rates unchanged on Thursday at the virtual meet. The EUR/USD currency pair awaits a further announcement from the ECB.
The second wave of the coronavirus is affecting the European economy. Business people expect another support announcement from the ECB soon. The second string of lockdown is expected in this region, fear investors. If restrictions on activity are brought in, the economic contraction for the fourth quarter will be high, say analysts.
France is expected to undergo another lockdown. Major cities are affected by the virus despite curfew already imposed in these cities. In Germany, Chancellor Angela Merkel is planning the closure of restaurants, gyms, and bars. The surge in coronavirus cases is increasing again.
The Euro to US Dollar exchange rate is expected to remain volatile with the US elections drawing close, and the negotiations going on about the stimulus bill talks in the United States.
EUR/GBP continues its slide below 0.9100 levels. It is trading currently at 0.9065 levels after taking support at 0.9014 levels at 1.15 GMT.
The GBP/USD currency pair is trading at 1.2935 on Wednesday, 28 Oct. It is broken lower than 1.30 levels.