The ECB kept interest rates unchanged, as expected. They also kept the size of the bond purchases (PEPP) unchanged at €1.85 trillion. However, they expect the pace of the bond purchases to be at a faster rate during the first months of the year. The ECB agreed on a monthly PEPP purchase target lower than 100 billion euros, but higher than the 60 billion seen in February.

A sources piece after the ECB decision stated that there were different opinions over whether the recent rise in yields needs to be unwound. Remember that speeding up bond purchase that keeps the yield lower. So, the ECB is divided the same way the market is divided. Is the rise in yields a sign of an economic recovery or a threat to the economic recovery? Discuss.

Limited impact

According to ING even if the purchases were doubled to €120 bln per month that would hardly impact the fundamental value of the Bund as a one-off. However, if the purchases were boosted to €110 bln per month and kept like that until the end of September it should have a 20bps impact. So broadly that brings some EUR selling pressure.


2021 inflation was upgraded to 1.5% from 1.0%, but longer-term inflation kept at 1.4% for 2023. So, a short term and temporary inflationary move higher is expected similar to what the Fed expects.

So what does all this mean?

So, this means that the ECB’s actions are not expected to particularly stand out in terms of market impact. However, if the bond purchases accelerate to 100bln and, this is the crucial part, remain accelerated then that should have a more negative impact on the EUR. There is around €1 trillion of the €1.85 PEPP package still to purchase, so the ECB has plenty of room to speed up (or slow down) bond purchases. The slowing down of PEPP purchases is also an option which Lagarde reminded the market of.

In terms of trading, this would keep a EURCAD sell on rallies in play with the following area a decent region to look for sellers marked on the chart below. The BoC took a more cautiously optimistic approach last week, so that should support the CAD against the EUR. EURUSD should also find sellers on rallies, but this will all depend on how things pan out from here and what the Fed decides.