Central bank events are known to be market-moving especially as monetary cycles are nearing their end. Given the above-average volatility that the market is exhibiting lately, it would not be surprising to see today’s ECB event leading to unusual ranges across different assets.
Traders are keeping an eye on two very important variables: Soaring inflation and strong economic growth. Those two factors are decisive for many analysts who believe that the monetary stimulus, which was implemented to boost the Covid-plagued economy should be wound down. Nonetheless, the pandemic’s uncertainty is still lurking in the shadows of the recovery.
Opinions from a broad spectrum of analysts believe that the ECB may hint at reducing its pandemic asset purchases towards the end of the year but will not really lean towards the hawkish side of central banking. The general consensus from the markets is seeing relatively quiet dovish figures which means that any reductions are not likely to be met by any shocked faces.
Back to the variables previously discussed, the inflation across the Euro Zone hit a 10 year high of 3% during the month of August. At the same time, the GDP, quarter/quarter, hit 2%, which was a surprise to many. Future economic releases with such promising results could change the actions of the ECB during the next few meetings, according to analyst’s expectations. Of course, any shifts in the pandemic’s dynamics could definitely lead to reassessment by lawmakers.
Whatever the ECB brings with it today, traders are ready for the added volatility which is welcomed by short-term market players. Furthermore, analysts are seeing the Dollar at a major junction following weaker than expected employment data out of the US which coincides well with the ECB event and that could end up being a major market mover for Euro pairs, and other products as well.
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