The European Central Bank (ECB) will leave its policies unchanged, and the focus will be on its message to the heads of state and government ahead of the EU summit. A balanced message calling on governments to act without sounding depressing would bid the euro, while a pessimistic, helpless stance would push it down, FXStreet analyst Yohay Elam said.
"The ECB will leave its policies unchanged at its July meeting. The ECB will also leave its interest rates unchanged, which will put the main lending rate at 0% and the deposit rate at -0.50%. Recent inflation figures have stayed above 0% , which makes further adjustments - lower real borrowing costs - unnecessary at this point. "
"The central bank's economic assessments and projections are significant, and it could push governments to act by warning of the long-term damage the pandemic will do. Lagarde's warning would undermine the European Commission's recent forecasts that the GDP shrinkage would be downgraded the euro zone from -7.7% to 8.7%, tightened even more. "
"Persuading countries to act would boost the euro - but taking a pessimistic outlook could also put investors off. If the situation is so bad, investors should assume that the ECB will accept the deterioration in the situation with resignation and, worse, worse - desperate, so that apparently all ammunition is gone. "
"If Lagarde looks bleak, there is room for EUR / USD to fall, while a more balanced message would likely revalue the single currency. This could take the form of a signal that it is now the turn of governments, which will be followed by further monetary stimulus . "