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The European Central Bank’s (ECB) decision to increase the size of the PEPP by €500 billion and to extend both the PEPP and the TLTROs into 2022 was roughly in line with market expectations, TD Securities analysts said.

Key quotes

“ECB President Christine Lagarde made it clear though that the pace of PEPP buying can go up or down from here, impacting the quantity that’s ultimately purchased, with the focus on maintaining favourable financing conditions–seemingly the ECB’s own version of yield curve control.

“This means that the ECB is unlikely to use the full €1.85 trillion PEPP envelope, in our view, and is more likely to use only about half of today’s €500 billion boost.”

“EUR/USD remains firm in the wake of the December decision, but we see this more as a result of broader USD weakness than from the ECB’s policy actions. Investors still have a long list of risks to navigate before year-end, however, leaving plenty of opportunities for a break out of recent ranges. While the uptrend retains some momentum, we continue to favour downside risks as the EUR looks increasingly unattractive along the dimensions of growth, valuation and positioning.”