Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Euro Attempts to Steady After Hit From ECB's New Dovish Guidance

ForexJul 22, 2021 03:36PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Yasin Ebrahim –  The euro attempted to stage a rebound on Thursday, after falling to more than three-month lows following the European Central Bank’s unchanged monetary policy and new forward guidance that many believe could keep interest rates lower for longer.

EUR/USD fell 0.16% to $1.1773 after trading as highs as $1.1831 ahead of the European Central Bank decision.

The ECB, as was largely expected, left its benchmark rate at 0% and its commitment to purchase €1.85 trillion through March 2022 unchanged.

The central bank revised its forward guidance on interest rates to reflect its strategy review earlier this month. Under the new framework, the ECB would will inflation to overshoot target its 2% target.

The ECB said the adjustment of forward guidance meant “emphasizing its commitment to sustainably maintain an accommodative monetary policy stance to reach its inflation target.”

As this tweak ties the forward guidance on interest rates more closely to inflation, interest rates aren't likely to rise anytime soon. 

“[T]he ECB did indeed make a shift towards more dovishness, putting more emphasis on the possibility of inflation overshooting and by tying the forward guidance on interest rates even closer to the inflation projections,” ING said.  “With an inflation projection currently of 1.4% YoY for 2023 and the new forward guidance, interest rates will remain low for even longer.”

Others agree, estimating that the central bank’s inflation target is unlikely to be met in the short-term.

“With its revised forward guidance on key interest rates, the ECB is signalling that it is likely to maintain its very expansionary monetary policy for a very long time,” Commerzbank (DE:CBKG) said in a note.

In the press conference that followed the policy statement, ECB president Christine Lagarde was quick downplay expectations that the revised forward guidance would result in a lower for longer interest rate environment.

“I’m not saying it’s going to be longer or lower,” Lagarde said. “I think it’s a sign that we don’t want to tighten prematurely.”

The ECB policy update is expected to exacerbate the divergence between a dovish ECB and a less dovish Federal Reserve, i keeping a lid on the euro against the dollar.   

"We suggest selling EUR/USD as a way to play for upcoming USD upside risks," Morgan Stanley (NYSE:MS) said. "Increasing central bank divergence [...] a US inflation disappointment that pushes US real yields higher and breakevens lower, and the Fed moving closer towards reducing the pace of its asset purchases, all raise the prospects of USD strength in coming months."

Euro Attempts to Steady After Hit From ECB's New Dovish Guidance

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email