Today is 1 month, 3 weeks and 1 day of the Russian invasion of Ukraine with no end in sight. The war uncertainty has led negatively on the confidence of businesses and consumers. Widely known Russia is the power house for its commodity enriched economy, who is an exporter for many developed & developing economies are weighing heavily to shortages of materials and input costs. With respect to the war saga, global economies are facing sharp rising inflation due to rise in supply inflation as demand is rising amid reopening of the economy after the crisis phase of the pandemic. On the flipside this war crisis, put energy and commodity on fire as a result, surging prices, reducing demand and stalled production, which causes trade disputes and economic fallout. Few cross-currency pair’s countries have also raised their interest rates to tighten their economies. Yesterday, New Zealand’s central bank delivered its biggest interest-rate increase in 22 years, signaling that policy makers around the world may need to step up efforts to get inflation under control. Along with, the U.S. Federal Reserve hiked its benchmark interest rate last month and maintained hawkish view for the rest of the year.
On Thursday, the European Central Bank kept its monetary policy unchanged. Also, confirmed it will end its bond buying in the third quarter. The interest rate on the ECB’s main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remains unchanged at 0.00%, 0.25% and -0.50% respectively.
During the April 2022 meeting, ECB policymakers said that it now expects to conclude its net asset purchases under its asset purchase program in the third quarter, which will be amount to €40 billion in April, €30 billion in May and €20 billion in June, the same as defined in the previous meeting and after the end of the asset purchase programme, if require adjustments in interest rates may take place. Accordingly, the Governing Council expects the key ECB interest rates unchanged until inflation reaching 2%.
At today’s meeting, ECB President Christine Lagarde said that how the Eurozone economy develops will “crucially depend on how the conflict evolves, on the impact of current sanctions, and on possible further measures.” Added to this she said, “inflation will stay high in the near term and then moderate to some extent” amid uncertainty from the war.
Looking ahead, Lagarde said the ECB’s Governing Council would take “whatever action is needed to fulfill the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability.”
On the economic front, Inflation has increased significantly and will stay high over the coming months because of the sharp rise in energy costs. Hence, the ECB kept policy flexible and keep options open.
Our View: Bearish
In short-term, EUR/USD expected to move lower if the multi-year support around 1.0800 broken on weekly basis.