EURUSD: European Central Bank Expected to Act on COVID-19

EURUSD: European Central Bank Expected to Act on COVID-19

The European Central Bank President Christine Lagarde has committed to ramping up the European Central Banks’s (ECB) bond buying process. This involves the Central Bank purchasing company debt and Government debt. Over the best part of the last decade, the ECB has continued to buy up debt in order to keep the European economy afloat. The main concern now however is that the ECB did follow very strict guidelines as to how much they buy from certain countries and also the standard of the debt they’re buying. Due to the severity of the COVID-19 fallout the ECB look set to buy Junk listed debt which essentially means they’re not going to get any return for buying that.

This is a risky strategy from the ECB with some analysts questioning the logic as it’s just throwing money after bad money. But there is no questioning that following the announcement of the €750bn bond buying scheme, there was going to need some bending of the rules. The euro may not see any immediate consequence from this but as they print more and more money, arguably the currency could begin to become weaker over time.

In other news that could help the euro find support, there is talk from several countries in the Bloc that lockdowns will begin to be lifted. Spain looks set from next week to allow life to get back to relative normality, allowing their economy to begin to get back on track. However, unemployment was already high there, we will have to wait and see just how many unemployed there are in the near future.

Unemployment Levels also a concern for the US

The United States is also expected to have a real fear with regards to the unemployment rate as a White House advisor recently suggested it could be as high as 16%. The US was pretty much at maximum capacity last year with Trump taking much credit for the state of the economy however it will be an interesting challenge to see if they can return the economy to those levels.

The US dollar has been gaining in strength with all this uncertainty as its safe-haven currency status comes to prevail. This could prove to be a hindrance to the US as it massively increases the costs of their exports and with so many cash strapped businesses, they may wait to place future orders.

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