GBP/EUR: Will A More Dovish ECB Pull Euro Lower?
  • US fiscal stimulus discussions bring back risk-on mood.
  • ECB might be considering a move towards Average Inflation Targetting.
  • EUR/JPY has recently bounced back from multi-month lows.

The progress in the US fiscal stimulus discussions sent the equity markets higher during the Asian session with Australia’s ASX 200 index climbing by a Percent and S&P 500 futures rising to 3,400 levels. At the same time, the haven-linked US dollar and the Japanese yen lost value against their competitors.

Gold is near 1,900 dollars, and silver is up by two Percent, in spite of the 10-year Treasury yield inching up back to 0.7 Percent. Manufacturing PMI readings from Europe are awaited ahead of the initial jobless claims from the US.

European Central Bank is under pressure to support the economy after a first-ever decline in the consumer prices on a yearly basis since May 2016, and the annual inflation fell to 0.4 Pc in August. Its President Christine Lagarde has shown more affinity towards the US-style Average Inflation Targeting during her scheduled speech on September 30. She referred to the recent discussion on the AIT as a central banking tool and added if successful, it would strengthen the capacity of monetary policy to boost the economy.

The Euro-zone has witnessed a mere 1.2 Percent average annual inflation in the past 12 years, and along with the resurgence of COVID, the Pandemic Emergency Purchase Program could be rolled out by the ECB shortly. Nevertheless, there are different opinions from some members who consider the program allocation as a ceiling and not a target.

But, the weak data flow and pandemic threat wouldn’t allow much room for ECB, and the chances of additional stimulus might weigh on the Euro in the short-term.