The most important event of the past week was without doubt the March meeting of the Governing Council headed by Mario Draghi.
The European Central Bank decided to keep the interest rates and the structure of Quantitative Easing unchanged.
The main interest rates remain unchanged at 0,00%, as announced in March 2016, while rates on deposits remain fixed in negative territory at -0,40%.
Quantitative Easing in March will still be 80 billion euro, but starting from April the monthly amount will be reduced to € 60 billion (or beyond, if necessary) until December 2017.
After the announcement, the market focused on Mario Draghi press conference which asserted ‘the economy is improving significantly enough to not make it necessary to use all the extraordinary measures such as TLTRO’.
The ECB President also announced the updated inflation forecasts, supporting the need to proceed as planned. The prospects for next year are for an increase of 1,6% instead of 1,5%, while the estimate for 2019 are unchanged at 1,7%.
EUR/USD reacted with a significant rise to the words of Draghi. The euro-dollar exchange rate was back in 1,06 area and on Thursday was up by more than 0,60%.
EUR/USD has ridden the wave in Friday’s session, following the publication on the US labor market. The non-farm payrolls have successfully passed the expectations (238.000 units), but the average hourly wage disappointed the analysts (it has increased by 0,2% in February).
The euro has continued its recovery against the US dollar, bringing the exchange rate to close the week up of + 0,67% since the last session of the week, which marked the worst day for the US dollar since January.
The upcoming week will be important from the point of view of monetary policy as there will be the meetings of many Central Banks. The most important will be the meeting of the Federal Reserve, to follow there will be he Bank of England, Bank of Japan and Swiss National Bank.
Traders will look then at their respective currencies: US dollar, pound, yen and Swiss franc. But do not forget that euro could still benefit from the positive sprint of the last Thursday’s ECB statement.
Investors attention will be monopolized mainly by the Fed meeting and the elections in the Netherlands, accompanied by the budget presentations by Donald Trump.
Dutch voters will go to the polls Wednesday for the first strategic election in Europe in 2017. The current Prime Minister of the center-right and the candidate of the extreme right are considered the favorites among the 28 parties that will be present on the ballot.
After the latest economic data and the various statements of Fed members, including Chairman Janet Yellen, investors are already thinking about a rate hike of a quarter percentage point.
Immediately after the meeting, the Fed will update its economic forecasts, including GDP, personal consumption expenditure and dot plot indicating the future path of US interest rates.
As for Trump, the US president will present the 2018 Tax Plan within the current budget. The budget should be increased of $54 billion for military spending, the largest increase in defense spending since 2008. The US President has previously revealed its intention to cut funding to the Social Security and health care.