The European Central Bank has announced its first strategy revision since 2003. It will include an inflation target of 2 percent over the medium term, compared with previous targets below but close to 2 percent, and the integration of climate change considerations into monetary policy operations.
The ECB will review its guidelines at its July 22 meeting to align them with the new strategy, Christine Lagarde, the head of the institution, announced in a Bloomberg television interview.
Lagarde gave, among other things, that the ECB will continue to maintain balanced financial conditions and support the economy. It is not yet time to talk about an exit strategy from loose monetary policy and its normalization. Moreover, the PEPP, or pandemic emergency purchase program, will not be terminated, but modified after some time. This in turn could mean years more of ECB action in the market and extremely low-interest rates in Euroland. All this may put pressure on the euro, which would be associated with the lack of prospects for an increase in interest rates for the common currency, at least in the coming quarters.
Meanwhile, the market is awaiting information on tapering the Federal Reserve's asset purchase program or so-called tapering. Jerome Powell, the head of the Fed, will address Congress this week. Investors may expect some information on this topic. If it turns out that the U.S. is moving towards normalization of monetary policy, and the Eurozone is not, we may be facing a period of several months of the dollar's advantage over the common European currency. Both managed money and leveraged funds investors may position themselves for such a scenario, according to COT reports published by the CFTC.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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