EUR/USD Rate Rally Vulnerable To ECB Verbal Intervention

The European Central Bank’s (ECB) first interest rate decision for 2018 may spark a limited reaction as the Governing Council is expected to retain the zero-interest rate policy (ZIRP), but President Mario Draghi and Co. may attempt to talk down the Euro as the ongoing appreciation in the exchange rate impedes on the outlook for inflation.

The Governing Council may continue to prepare European households and businesses for a less accommodative stance as the central bank starts to wind down the quantitative easing (QE) program, but the ECB may keep the door open to further support the monetary union as ‘the projected upward path for inflation was subject to considerable uncertainty, with as yet insufficient signs of self-sustaining upward pressures in underlying inflation.’

In turn, a growing number of ECB officials may warn of ‘sudden movements which don’t reflect changes in fundamentals,’ and President Draghi & Co may merely attempt to buy more time as price growth continues to run below target.

Impact that the ECB rate decision has had on EUR/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2017

12/14/2017 12:45:00 GMT

0.00%

0.00%

+7

-52

December 2017 European Central Bank (ECB) Interest Rate Decision

EUR/USD 5-Minute Chart

The European Central Bank (ECB) stuck to the zero-interest rate policy (ZIRP) in December, with the Governing Council on course to wind down its quantitative easing (QE) program as the central bank will ‘continue to make net asset purchases under the asset purchase programme (APP), at a monthly pace of €30 billion, until the end of September 2018, or beyond, if necessary.’