The last ECB meeting saw rates unchanged, as expected. The size of the €1850 PEPP bond purchase programme also remained unchanged. Again, as expected. So no surprise so far.

The ECB repeated the notion that they anticipate interest rates remaining low until the inflation outlook moves up to a level sufficiently close to, but below 2%. This is a repeat of earlier messages. However, there was a change in the way that the PEPP bond package would be used.

PEPP bond purchase change shows more optimism

The emphasis shift concerting the full use of the PEPP envelope was when the ECB reminded markets that the full €1850 PEPP envelope does not necessarily have to be used.

This is more upbeat from the ECB as well as a recognition to the ECB policy makers who did not want such a large PEPP envelope in the first place. The total amount of the PEPP envelope remains at €1850 billion with purchases set to remain at their current scale and pace until March 2022.

The Press Conference

Remember that all central bank meetings are not really ‘complete’ until after the press conference. In the last ECB’s press conference Christine Lagarde echoed this positive sentiment reflected in the statement noting that risks to growth is still tilted to the downside, but less pronounced.

This now sees the ECB turning more upbeat due to vaccine optimism. In relation to the EURUSD exchange rate Lagarde said that the ECB was carefully monitoring FX rates and she repeated that no-tools are off the table.

The reaction of the EURUSD was muted and the drift higher after the ECB meeting last week was driven by the weaker USD last week. There was no obvious currency moves to be taken advantage of on this meeting due to the lack of surprises. It was pretty much as the market expected, but with a slightly more optimistic tone.