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ECB leaves rates unchanged, Euro rises

ECB leaves rates unchanged

The ECB decided to leave interest rates unchanged, with interest rates staying at negative 0.5%.

Euro Against the US Dollar

The ECB stated that it is closely monitoring the recent strengthening in the Euro, citing inflation issues in the medium term Christine Lagarde noted that it would “Carefully assess incoming information including developments in the exchange rate, with regards to its implication for the medium-term inflation outlook.”

Strengthening in the Euro will hurt exporters

The issue with the strengthening of the Euro is that it will become more expensive for importers in other countries to purchase goods from Europe, possibly hindering the Coronavirus recovery. Analysts are surprised in the relatively bullish tone the ECB has on the Euro, given a strengthening in the Euro may hinder the Coronavirus recovery. Dean Turner, an economist at UBS Global Wealth Management, stated that “Perhaps the only surprise was the reluctance of President Lagarde to push back on the strength of the euro during the press conference.”

This leads to suggest that Christine Lagarde is trying to stray away from Mario Draghi’s precedent of negative interest rates, once stating that “For rates to be higher in the future, they need to be lower today.” Even with the pandemic, I believe Christine Lagarde is set on reversing that trend – Using the Coronavirus as an upper hand in pushing the ECB rates favorable. With that said, it is likely we will not see favorable interest rates anytime soon as GDP annual growth rates dropped 14.7%

Long term outlook for the Euro may be higher

However, with Christine Lagarde having a relatively loose stance on the strength of the Euro, Christine Lagarde objective to pull Europe out of the Coronavirus as quick as possible to push interest rates back higher may set a long term goal for the Euro at 1.40 against the US Dollar, not seen since 2014.