ECB Leaves Rates, Asset Purchases Unchanged; Tweaks Lending Ops by Forex Signals

The ECB also announced a series of seven new funding operations, to be titled PELTROs, to take place from May. Maturities will be staggered between June and September 2021.

It also held out the prospect of adding to its bond purchases in the future, if need be.

The decisions, which are less radical than some in the market had hoped, come on the same day that new data showed the eurozone economy shrunk by 3.8% in the first three months of the year from the final quarter of 2019.

As that number isn’t annualized, that represents a much sharper decline than the 4.8% drop in U.S. GDP announced on Wednesday. However, it also reflects the fact that European economies went into lockdown earlier than the U.S.

ECB President Christine Lagarde will elaborate further on the decisions at her press conference, which starts at 8:30 AM ET (1230 GMT).

The euro was largely unchanged on the news, but sovereign yield spreads within the euro zone widened on disappointment that it had not expanded the PEPP program.

The U.S. dollar was a little lower in early European trade Thursday, with traders having to balance the potential for more central bank largesse with the vivid illustrations of the damage the coronavirus outbreak has been doing to the global economy.

At 3:05 AM ET (0705 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.523, down 0.1%, while EUR/USD rose 0.1% to 1.0884. GBP/USD climbed 0.1% to 1.2471 and USD/JPY fell 0.1% to 106.56.

The focus has turned from the Federal Reserve to the European Central Bank, as the governing council has to decide on Thursday if more than 1 trillion euros ($1.1 trillion) in asset purchases and a generous lending plan are enough to keep companies and households afloat.ECB Leaves Rates

“Our economists expect the ECB to announce a 500 billion euro expansion to the (bond buying) program to serve as a backstop against increased fiscal issuance needs,” said Goldman Sachs (NYSE:GS) strategist Michael Cahill in a note.

“The path for the euro in the near-term will depend on the mix of measures introduced,” he said, with targeted credit action likely to reduce domestic risks and offer support, while a “wait-and-see” stance from the bank could weigh on the currency.

The ECB is meeting on a day that eurozone economies are following the U.S. in announcing the biggest quarterly drops in GDP in over a decade. France’s fell 5.8% while Spain’s fell 5.2% in the quarter. Figures for the euro zone as a whole are due at 5 AM ET (0900 GMT).

“We will continue to use our tools to ensure that the recovery, when it comes, will be as robust as possible,” said Fed Chairman Jerome Powell.ECB Leaves Rates

“It may well be the case that the economy will need more support from all of us if the recovery is to be a robust one,” Powell said.

U.S. gross domestic product fell 4.8% in the first quarter, the worst economic decline since 2008, exceeding economists’ forecasts for a 4% decline in output, and the second quarter is likely to be far worse.

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