ECB Keeps Monetary Policy Unchanged

Market Trends - 21/04/2016

The European Central Bank decided at its monetary policy meeting today to leave the main lending rates unchanged with the minimum bid rate at zero percent and the ECB's deposit lending rate at -0.40%. The central bank's asset purchases were also left untouched, at 80 billion euros a month. EURUSD, which was trading weaker since the Asian session, managed to recover ahead of the ECB's rate decision announcement and rallied back to reclaim the $1.130 handle. The no-change to policy today comes as expected given that the central bank expanded its monetary policy toolkit only last month.

Looking ahead, ECB President Mario Draghi and Vice-President Vitor Constancio will be holding a press conference. This is likely to garner a lot of attention as Draghi is expected to undo his statements from the previous conference, where he said that he did not expect further rate cuts, which sent the euro rallying despite the broad cuts that were delivered across the main lending rates. Economic data from the euro area has been broadly positive over the past months with inflation showing modest signs of improvement. However, it is unlikely that the ECB will strike a hawkish tone as many central banks continue to brush aside the recent increase in inflation calling it a mere blip and maintaining their weak inflation forecasts. The ECB has also come under pressure from Germany which has remained a staunch opponent to the central bank’s easy monetary policy measures.

Gold prices took an early lead today ahead of the ECB meeting as prices surged by over 1.0% in the initial trading hours of the European session in anticipation that the central bank will remain biased to the dovish side. Gold was seen trading at $1,259 an ounce.

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