Euro Advances As ECB Lagarde Sees Risks To Growth Outlook As Broadly Balanced

The euro moved higher against its major trading partners in the European session on Thursday, after European Central Bank President Christine Lagarde struck an optimistic tone on the economy, saying that the risks surrounding the euro area growth outlook have broadly balanced.

The latest data indicate a bounce-back in service activity and economic activity will likely accelerate in the second half of this year, driven by a further relaxation of containment measures, Lagarde said in a press conference in Frankfurt.

Over the medium term, the recovery in the euro area economy is expected to be underpinned by stronger global and domestic demand, as well as by continued support from both monetary policy and fiscal policy.

Lagarde said that underlying inflation is expected to increase gradually but price pressures would remain subdued and slack in the economy would keep inflation below the ECB goal through 2023.

The ECB chief talked down the prospects of tapering asset purchases under the pandemic emergency purchase programme, which was launched to stimulate lending and fuel an economic recovery.

The ECB lifted its forecast for inflation and growth for 2021 and 2022. The ECB raised its GDP growth outlook to 4.6 percent for 2021 and 4.7 percent in 2022, from its prior forecasts of 4.0 percent and 4.1 percent, respectively.

The central bank revised up its inflation forecasts to 1.9 percent for 2021 and 1.5 percent in 2022, versus its March estimates of 1.5 percent and 1.2 percent, respectively.

The Governing Council retained the main refi rate at a record low of zero percent and the deposit rate at -0.50 percent. The marginal lending facility rate is at 0.25 percent.

The Governing Council maintained the pandemic emergency purchase programme at EUR 1.85 trillion.

The purchases under the PEPP will continue to be conducted at a significantly higher pace over the coming quarter than during the first months of the year.

“The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” the bank said.

The currency fell in the Asian session, as caution prevailed ahead of the ECB monetary policy decision.

The euro strengthened to a 6-day high of 133.75 against the yen, after a 3-day drop to 133.11 at 3:30 am ET. The pair was worth 133.49 when it ended deals on Wednesday. Immediate resistance for the euro is seen around the 137 level.

Data from the Bank of Japan showed that Japan producer prices climbed 0.7 percent on month in May.

That exceeded expectations for an increase of 0.5 percent and was down from 0.9 percent in April.

The euro gained 0.4 percent to 1.2195 against the greenback, from a 3-day low of 1.2151 logged at 8:30 am ET. The pair had closed Wednesday’s deals at 1.2178. Further rise in the euro may see resistance around the 1.24 area.

The euro added 0.3 percent to 1.0926 against the franc, after having fallen to a 3-1/2-month low of 1.0896 at 2:00 am ET. At Wednesday’s close, the pair was valued at 1.0905. Next near term resistance for the euro is likely seen around the 1.13 level.

On the flip side, the euro pulled back from a 9-day high of 0.8642 against the pound, with the pair trading at 0.8597. The euro-pound pair had finished yesterday’s trading session at 0.8624. Should the euro falls further, it is likely to test support around the 0.84 region.

Survey results from the Royal Institution of Chartered Surveyors showed that UK house prices continued to increase in May driven by robust demand and shortfall of new instructions.

The house price balance rose to 83 percent in May from 76 percent in April. This was the fourth successive month in which upward pressure on house price seemingly intensified, RICS said.

The European currency was down against the aussie, at a 2-day low of 1.5706. The euro-aussie pair was worth 1.5745 at Wednesday’s close. Extension of downward trading may see the euro finding support around the 1.54 region.

The euro extended its early decline against the kiwi, reaching as low as 1.6910. At yesterday’s trading close, the pair was quoted at 1.6952. The euro may face support around the 1.66 level, if it falls again.

The single currency dipped to a 2-day low of 1.4710 against the loonie, pulling away from a 10-day high of 1.4760 seen at 8:30 pm ET. The euro was trading at 1.4745 per loonie at yesterday’s close. Next key support for the euro is likely seen around the 1.46 level.

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