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European Central Bank’s updated projections should reflect underperformance from slow distribution of Recovery Funds and covid vaccines. Thus, the EUR/USD pair may test 1.17-1.22 range support, economists at Westpac report.

Key quotes

“The European Union economy is likely to be constrained until well into H2 21 while economies such as the UK and US, with more successful vaccine rollouts and slowing new cases will outpace the EU. The ECB’s updated economic projections may well highlight the impact with only a minor uplift to regional growth compared to uplifts in other major economies.”  

“ECB is likely to underscore its commitment to support the recovery and be flexible with its PEPP to avoid spread widening and excessive yield rises but is not likely to alter its policies otherwise.”  

“The region’s underperformance in vaccine rollouts and consequent recovery underperformance is likely to weigh on EUR/USD which may now struggle within a lower 1.17-1.22 range through March.”