EUR/USD: Discount rate cut to support euro – Rabobank

Economists at Rabobank expect the ECB to add €250 billion to its Pandemic Emergency Purchase Programme (PEPP) and a 10 bps cut in the deposit rate which should support the euro. 

Read: PEPP expansion to lift EUR/USD – TDS

Key quotes

“The ECB is likely to announce a €250 billion addition to PEPP and a 10 bps cut in the discount rate. Although a headline regarding a rate cut could cause the EUR to wobble, in the current environment investors are more likely to see further policy action as more reason to plough more money into peripheral assets, which could bring some support to the EUR.”

“If European officials can follow through and build a more integrated EU, this would likely be seen as a game changer for political risk in the Eurozone. In turn this could bolster the long-term value of the EUR.”

“While the bull market may have further to run in the near-term and the up-move in EUR/USD further to go, we remain sceptical at present that we have witnessed an enduring turn in the direction of EUR/USD. The December high at 1.1239 could provide some resistance.”