Euro trades near $1.20 after ECB pledges to step up bond purchases in Q2

Vrasidas Neofytou
Head of Investment Research

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Euro trades near $1.20 after ECB pledges to step up bond purchases in Q2

Euro trades near the $1.20 mark after the European Central Bank promised to step up its pace of bond purchases over the next quarter, easing the concerns for the elevating bond yields in the Eurozone.

EUR/USD pair, Daily chart


European Central Bank’s decisions:

The Frankfurt-based European Central Bank decided yesterday to maintain its interest rates at 0.00% and leave its 1.85 trillion euros ($2.21 trillion) PEPP-Pandemic Emergency Purchase Program unchanged until March 2022, without discussing the further increase of the amount.

Hence, it pledged to ramp up its bond purchases in the second quarter of 2021 at a higher pace than during the first quarter, based on the EU inflation outlook and current market dynamics. By increasing its bond purchases, ECB could tap the recent bullish momentum in yields, keeping the borrowing costs lower.

ECB’s president Christine Lagarde’s targets were to calm down the bond markets and ease the inflation concerns among investors as the Eurozone’s bond yields have been rising in tandem with the US bond yields since mid-February amid the massive fiscal and monetary policies.

Market participants afraid that the faster-than-expected rally in the bond yields around the world could harm the global economic recovery, by increasing the lending costs of the companies and countries that already struggling with the pandemic.


Eurozone’s Economic Outlook 2021-2022:

According to the latest ECB’s forecasts, the 19-Eurozone’s economies GDP-Gross Domestic Product could grow by 4.0% in 2021 and 4.1% in 2022, getting support from the massive fiscal stimulus, low interest rates, successful vaccine rollout, and the reopening of the local economies.

However, the ECB’s projections for faster economic recovery could be at risk as many countries remain under strict social restrictions to limit the spread of the Covid-19, while the EU’s vaccine rollout program is far behind the schedule, compared to the UK.

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