The European Central Bank (ECB) delivered its first monetary policy decision of the year. The central bank left things unchanged, as widely expected by all investment houses. 

As usual, the interest rate decision was followed by some quick headlines as to what exactly the ECB did – it affirmed the size of the pandemic purchase program at €1.85 trillion, it continues to buy €20 billion/month under its other QE program, the APP, and left all three interest rates unchanged. Therefore, the interest shifted to the press conference, where market participants hoped to hear more from Lagarde.

Slightly Hawkish ECB Despite European Lockdowns

Europe is facing challenging times. It is one of the hardest-hit areas in the world by the COVID-19 pandemic, and vaccination efforts lack speed. Only in the second part of the year and toward the end of it Europeans hope to achieve herd immunity from the virus. As such, the ECB pointed out, correctly, that the risks to the growth outlook are tilted to the downside.

On the inflation front, Lagarde acknowledged that it remains very low and that she sees protracted weakness in inflation. Finally, she mentioned that the ECB closely monitors the developments in the exchange rate.

However, the ECB could not sound more hawkish even if it tried. Lagarde made it clear that the central bank may not use the entire PEPP envelope (hawkish), that the downside risks, while in place, are less pronounced (hawkish again), and that the Brexit deal led to an improvement in the staff projections growth perspectives (hawkish).

Faced with such statements, traders began bidding for the EURUSD exchange rate that went as high as 1.2170 after it traded earlier in the week in the vicinity of 1.2050. Truth be said, the EURUSD had a bid tone all day today, finding bids on every dip.

Just like at the previous ECB meeting, the one in December, the ECB delivered a mixed signal and had an even poorer communication strategy. Lagarde lacks Draghi’s charisma and one can easily read hesitation every time she is scrutinized by the financial media representatives.

All in all, the ECB is on a stand-by mode and waits for the vaccination efforts to unfold before committing to anything else. Just like other central banks, the ECB chose to “skip January” and buy more time in front of the pandemic.