The coronavirus angst returns back to the market while the biggest wave of infections is currently seen in Asia and India. The U.S. dollar, however, has not significantly benefited from safe-haven flows – at least not until now. While Europe is currently less severely affected by new infections, the risk of spreading casts a shadow over the global economic rebound. In the end, the pace of vaccinations and the vaccine’s efficiency against variants over the coming months will dictate the recovery.
Investors rewarded currencies with better track records of managing the outbreak, such as the Israeli shekel or the British pound. Also, the euro showed evidence of resiliency with the EUR/USD holding above 1.20 ahead of today’s ECB decision.
All eyes will be on the European Central Bank decision today at 11:45 UTC, followed by the ECB’s press conference 45 minutes later. It is expected that the ECB will keep its policy unchanged, confirming that asset purchases will run at a faster pace until June. Today’s decision will be of particular interest after the Bank of Canada became the first major central bank to signal the tapering of asset purchases and faster rate hikes. However, the ECB is trapped in a situation in which high coronavirus infections are forcing tougher restrictions while at the same time, progress on the vaccine front allow for optimism that a rebound is near. Growth and inflation projections are however not available until the ECB’s next meeting in June, which is why today’s meeting is unlikely to act as a game changer.
The focus is however on the tone of the press conference and if there is any hint of a hawkish shift, the euro will rise. A next higher target is 1.2110, whereas on the downside, the 1.20 support remains in focus. If the euro falls below 1.1990, it may extend its slide towards 1.1950 and possibly even 1.1880.
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