Despite the lack of breakthrough in Brexit trade talks on Wednesday, there was some good news for the EU when it was announced that Hungary and Poland have lifted their veto over the EU budget. What’s more, the ECB’s upcoming policy meeting will also come into focus for market participants later today. Ahead of the meeting, the euro has extended its advance against the US dollar back above the 1.2000-level, economists at MUFG Bank brief.
Key quotes
“According to an official familiar with the discussions, Germany has brokered a compromise that will be put before EU Leaders at today’s Summit. The compromise proposal will still link financial support to tougher democratic standards, although such sanctions can’t be triggered before the European Court of Justice has ruled on the legality of the new rules. It is a process that could take more than a year to complete according to the official. The compromise deal is expected to be accepted at today’s EU Summit by the Leaders which will pave the way for the 2021- 27 budget and EU Recovery Fund to be approved without undue delay. It is a positive development for the economic recovery in Europe and will ensure more fiscal support from next year.”
“The ECB has already clearly signalled that it is set to ‘recalibrate its instruments’ today and while we would argue the forecasts to be published won’t change dramatically, we are likely to see a EUR500 B increase in PEPP, which will be utilised to extend the degree of monetary stimulus at least through to the end of 2021.”
“Overall, we do not expect any major surprises today from the ECB and hence the euro is set to remain well supported within what looks like a new trading range between 1.2000-1.2500.”
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