HomeDifficult Communication Task for ECB at Today’s Meeting

Difficult Communication Task for ECB at Today’s Meeting

The ECB aims at striking a balance between an increase in the APP and a decrease in the PEPP programs. Christine Lagarde must find consensus between hawks and doves in the Governing Council.

The main event of the trading week for the euro traders is here. Later today, the ECB delivers its monetary policy decision, facing a difficult communication task.

On the one hand, it must strike a compromise between hawks and doves in the Governing Council. Inflation is higher in Germany, but the ECB is setting the policy for the Euro area as a whole. Therefore, it is vital to keep a balanced approach, especially because the inflation outlook in the Euro area remains subdued. Hence, the Asset Purchasing Programme or the APP might be increased.

On the other hand, the ECB also runs the Pandemic Emergency Purchasing Programme or PEPP. Launched during the pandemic, it is expected to be phased out by the summer of 2022, slowing down possibly even this quarter.

Therefore, the challenge for the ECB is to find the balance between expanding the APP and phasing out the PEPP, without sounding not too hawkish but not too dovish as well. It explains the recent price action in the euro pairs, as market participants prefer to wait and see the decision before acting.

ECB Staff Projections In Focus

Once the decision is announced, the next area of focus is when the ECB staff projections are announced. Judging by the schedule of the ECB’s communication process, the increase/decrease in purchases is likely to be announced forty-five minutes before the press conference starts.

The ECB staff projections will likely incorporate the spillovers from the US economic growth, thus providing a possible tailwind to the Euro area economic growth. The bigger the surprise, the stronger the euro pairs’ reaction, as there is no secret that the outlook improved since the last meeting. It all depends on by how much and what will the ECB have to say about it.

Inflation expectations are on the radar as well. Inflation in the Euro area remains subdued, still a concern for most of the Governing Council members.

Last but not least, details about the upcoming ECB strategy review may also move markets. All in all, a difficult communication task for the ECB and even more difficult for traders and investors to assess all the information the central bank provides today.

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