MUFG Research discusses the impact of the ECB's new Pandemic Emergency Purchase Program (PEPP).
"In another dramatic policy move, the ECB held an emergency meeting overnight and announced a significant asset purchase increase under a new so-called Pandemic Emergency Purchase Programme (PEPP). The new PEPP will have an overall envelope of EUR750 billion to purchase assets until the ECB judges that the coronavirus crisis phase is over but in any case not before the end of this year," MUFG notes.
"Overall, the ECB has delivered a much stronger policy commitment to help avoid the risk of an even more significant negative hit to the euro-zone economy and further financial fragmentation in the euro area...Low yielding currencies such as the euro as still holding up relatively well against the surging US dollar in comparison to most other currencies. As a result, the euro continues to strengthen sharply more broadly.
In the current crisis environment, the ECB’s aggressive easing of policy is not expected to prove as effective at weakening the euro," MUFG adds.