EUR/USD Ends Rocky Ride Flat as ECB Taper Talk Seen Heating Up By

EUR/USD Ends Rocky Ride Flat as ECB Taper Talk Seen Heating Up By

© Reuters.

By Yasin Ebraim – The euro whipsawed against the dollar but ended the day flat Thursday as the European Central Bank signaled that policy would remain lower for longer, but signs of division among bank members on tapering sets up a rocky road to the September meeting.

fell 0.07% to $1.2171 after hitting a low of $1.2144.

The European Central Bank kept its benchmark rate steady at 0.00%, and said it expected over the “coming quarter” to continue purchases at a “significantly higher” pace than seen in the first months of 2021.

Heading into the decision, inflation was running high, prompting many to expect that the bank would have to go the extra mile to reassure investors that any notion of tapering would be dead on arrival.

The pickup in inflation was factored into the central bank’s latest projection as it upped its forecasts for economic growth and inflation for this year and 2022, but in a sign that it believes that pressure will transitory left its 2023 forecast unchanged.

The ECB also welcomed the recovery in the market, describing the risks to the economic outlook as “broadly balanced.”

This acknowledgement of an improving recovery didn’t shift the bank’s thinking on tapering. ECB Governor Christine Lagarde “insisted that there had been no discussion whatsoever in the meeting over the pace or nature of asset purchases further ahead than the coming quarter,” said Daiwa Capital Markets.

But behind the scenes at the central bank, not all its members appear to signing from the same page, setting up a tricky few months for the ECB governor.

“Lagarde admitted that there had been some diverging views on the Governing Council over today’s decision on the near-term pace of purchases, giving a taste of the potentially acrimonious debates ahead at September’s meeting,” Daiwa added.

Beyond the tricky taper talks, however, most see the euro gaining on the dollar amid a backdrop of improving eurozone economy as vaccinations gather pace, allowing a speedier reopening

“Beyond the June ECB meeting, we retain our constructive view on EUR/USD and target the 1.25 level this summer,” ING said earlier this week.

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