Euro and ECB Policy Outlooks!

For the eurozone, in Q4 of 2023, data showed that the economy was stagnant with a 0% gain in GDP, while the market was expecting a decrease of 0.1%....

author: Economician

published:Feb 28, 2024 12:7

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2 minutes

category:currencies

For the eurozone, in Q4 of 2023, data showed that the economy was stagnant with a 0% gain in GDP, while the market was expecting a decrease of 0.1%. The Eurozone economy now shows some poor signs of recovery, but a recession is still expected, even if it is not severe. The EZ economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.

On the other hand, inflation eased to 2.8% in January, while the core CPI also dropped to 3.3% from 3.4% in December, as expected. Data now suggest that, with slowing inflation, we have a weak economy and thin glimmers of hope. With these conditions, we can expect the ECB to stay put in its March meeting, but in the policy meeting of April, the option of reducing the interest rate is not far from expected.

In the January meeting, as expected, the ECB left the policies unchanged and rates at 4.50%. In the press conference after the meeting, Mrs. Christine Madeleine Odette Lagarde, the French politician and lawyer who has served as President of the European Central Bank since 2019, stated that interest rates are currently at sufficiently high levels to bring inflation down to the central bank’s 2% target over time. However, she did not give a clear clue as to what the ECB wants to do in its next meetings. This expected policy can help Eurozone stock markets, but it cannot increase the pressure on the Euro as well. However, with slight increases in Eurozone economic data, we can get some support for the common currency.

From a technical point of view, in the daily chart, the long-term downtrend is losing steam. The first resistance sits at 1.0950, and breaking above that can open the doors for higher levels, while dropping under the first support at 1.0630 and then breaching under 1.0470 can maintain pressure on the euro for the longer term.