A Preview of Today’s ECB Decision

on Jan 21, 2021
Updated: Dec 19, 2022

The European Central Bank (ECB) delivers its monetary policy decision today. Every six weeks, on a Thursday, the central bank makes public its interest rate decision after evaluating the economic and monetary developments in the past six weeks. 

As usual, today’s decision is followed forty-five minutes later by a press conference. During the press conference, the President of the ECB, Christine Lagarde, reads the statement and takes questions from the financial media representatives.

Will the ECB Surprise Markets Today?

Today’s decision comes after the ECB was mostly disappointed in December of last year. Back then, many traders and investors expected the central bank to deliver more easing, but it did not happen.

At this meeting, the central bank is pressured on two fronts. On the one hand, sits the pandemic, and on the other hand, the higher EURUSD exchange rate.

On the pandemic front, Europe is on the verge of disaster. The winter holidays brought a dramatic increase in infections. As a result, the largest economies in the Eurozone (e.g., Germany, France) are closed. Talks are held now at the highest EU level for borders to close again between states to stop the spread of the new variants.

Vaccination is slow or very slow in most European countries. For whatever reason (e.g., lack of infrastructure, personnel, vaccines), European countries do not manage to roll out the vaccines as fast as needed. For example, Spain is one of the leaders in the number of people vaccinated, and it barely exceeded 2% of the population. Moreover, 70+ and older will only start being vaccinated in March. If Spain leads, imagine the situation in other countries.

In other words, European economies go from bad to worse, and the pandemic as well. Hence, the ECB may be forced to hint at new measures to tackle the already compromised first two quarters of the year.

On the exchange rate front, the EURUSD rate eased a bit from the highs. It currently trades slightly above 1.21 after reaching 1.23 in December. However, in absolute terms, the decline is insignificant. Therefore, the ECB may express again its concerns about the higher exchange rate, and that may weigh on the Euro today.

All in all, expect a grim picture presented by the ECB. If the bank does not deliver anything new, it is only because it exhausted its arsenal.