Central banks

A Cautious Fed
June 12, 2020

By Deepta Bolaky  @DeeptaGOMarkets A Cautious Fed FOMC Meeting Investors were eagerly looking forward to the Fed’s statement and forecasts for clues on how the Fed is viewing the health of the economy after easing lockdown measures. Global ce...

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The Lockdown, the Fallout and the Roadmap to Recovery
May 1, 2020

By Deepta Bolaky  @DeeptaGOMarkets Global Lockdown In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global econ...

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Fed in Focus – US Repo and Funds Rate
September 18, 2019

By Deepta Bolaky  @DeeptaGOMarkets Fed in Focus - US Repo and Funds Rate  During the week, it was all about the Repo market. A Repurchase Agreement known as Repo is a form of short-term borrowing for dealers in government securities. The Repo ma...

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ECB: Draghi’s Last Call for A Significant Degree of Monetary Stimulus
September 11, 2019

By Deepta Bolaky  @DeeptaGOMarkets Central banks of major economies like the US, UK and Japan turned to quantitative easing (QE) at a time where they were unable to push interest rates any lower. The European Central Bank (ECB) launched its firs...

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All Eyes on Jackson Hole Economic Symposium
August 22, 2019

All Eyes on Jackson Hole Economic Symposium The annual Jackson Hole Economic Symposium is sponsored by the Federal Reserve of Kansas City and is annually held in Wyoming. It is an exclusive central bank conference which fosters open discussions on g...

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RBA August Statement
August 6, 2019

By Deepta Bolaky  @DeeptaGOMarkets The Main Headlines of the RBA August Statement By Philip Lowe, Governor: Monetary Policy Decision The Board decided to leave the cash rate unchanged at 1.00 per cent. The outlook for the global eco...

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Dissecting the FOMC Statement
August 1, 2019

By Deepta Bolaky  @DeeptaGOMarkets Dissecting the FOMC Statement The US Federal Reserve cut interest rates overnight by 25 basis points, taking the US Federal Funds rate to 2.25%. The rate cut was mostly seen as a hawkish one. In the press confer...

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Fundamental Analysis: Macro Factors
July 18, 2019

By Deepta Bolaky  @DeeptaGOMarkets Fundamental Analysis: Macro Factors The rapidly growing global interconnectedness means that the health of one country's economy can impact the world markets. As a result, traders generally follow the economic c...

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Deutsche Bank Revives The Failure of Lehman Brothers
July 12, 2019

By Deepta Bolaky  @DeeptaGOMarkets Deutsche Bank Revives The Failure of Lehman Brothers Deutsche Bank’s woes dominated headlines this week. On Sunday, the multinational investment bank announced 18,000 job cuts around the globe by 2022 and shu...

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“Will China Dump US Treasuries?”
May 15, 2019

By Deepta Bolaky  @DeeptaGOMarkets “Will China Dump US Treasuries?” A tweet from Hu Xijin, editor-in-chief of the Global Times grasped attention on Tuesday morning,  and even Bloomberg reported that it had triggered a readership surge on...

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Preview: Bank of England Rate Decision
May 2, 2019

Brexit has been dominating the news flow in the United Kingdom for a long time, but on Thursday all eyes will be on the latest Bank of England rate decision. The decision is set to be announced at 12 PM London time. About Interest Rates In...

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Central Bank Interest Rates
April 25, 2019

Today, the Bank of Canada announced its decision to leave interest rates unchanged at 1.75% and with other major central bank policy meetings due to take place in the coming weeks, there is no better time to look at the current interest rates of ...

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Up Next: The Bank of Canada Rate Decision
April 24, 2019

One of the must-watch economic events this week will be the Bank of Canada interest rate decision. The decision is scheduled to be announced on Wednesday 24th April at 15:00 PM London time. Why Is The Announcement Important? A bank interest rat...

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Federal Budget – “Back in the Black”
April 3, 2019

By Deepta Bolaky  @DeeptaGOMarkets Federal Budget - "Back in the Black" "Returning the budget to surplus, delivering more jobs, providing lower taxes, guaranteeing essential services." We are in the election year, and the government needed a...

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Hawkish & Dovish Explained!
March 29, 2019

By Deepta Bolaky  @DeeptaGOMarkets Hawkish and Dovish are two crucial words widely used in our industry whenever there are central bank speeches or talks about monetary policies. But what does it mean? Central banks are more transparent th...

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By Deepta Bolaky
 @DeeptaGOMarket

EU Recovery Fund

After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member states within the Eurozone has brought some optimism.

The downside risks for the Eurozone and its shared currency have somewhat eased on the fact that Europe, which was the epicentre of COVID-19 after China, might have gone through the worst phase of the pandemic. The sentiment for the Euro was also buoyed by the EU Recovery fund proposed by Chancellor Angela Merkel and President Emmanuel Macron to help Europe’s mostly hit countries.

Unfortunately, the optimism over the coronavirus fund proposal, which aims to show unity in overcoming the crisis and to achieve quicker economic recovery, was short-lived.

Europe’s Frugal Four 

Amid an unprecedented crisis, the Franco-German proposal was to provide support and reinforce EU financial relations and show that Europe is standing together. Austria, Denmark, the Netherlands and Sweden, dumbed as the “frugal four” put forward a counter-proposal that highlights the diversion of opinions in helping the Southern members states.

Grants or Loans

The Franco-German proposal is about “overcoming the crisis united and emerging from it stronger”. Both leaders proposed to make outright grants to help countries in need. They want to launch a temporary fund of 500 billion euro for EU budget expenditure:

“This would not provide loans, but rather budget funding for the sectors and regions hit hardest by the crisis. We firmly believe that it is both justified and necessary to now provide funding for this from the European side that we will gradually deploy across several European budgets in the future.”

In contrast, the frugal four wishes to provide loans rather than grants to southern European countries and expect the recipients of loans to comply with the fundamental principles of the EU and commit to strong reforms in repaying the loans. Their two-year and “one-off” proposal appears to also outline how those countries should use the funds and target sectors that are mostly hit based on an assessment.

The coronavirus pandemic is testing the solidarity of European members and is threatening to reawaken a euro crisis. Southern countries like Greece, Italy and Spain lacked the fiscal space they need to put forward an economic stimulus package to support their economies, compared to Northern countries. 

Disparity? Compromise?

Both proposals are saying “yes” to emergency aids to assist with recovery, but the disparity lies on how the funds will be financed to respond to the economic wreckage. The size of the emergency fund, the conditions of the funds or whether it will be grants or loans will be a compromise the markets are expecting to see. However, the type of compromise might be a key factor in determining the relationships of EU members.

Unprecedented times probably need unprecedented Unity.

Euro – The Shared Currency

The fact that Europe may have gone through the worst phase of the coronavirus has somewhat eased the downside risks of the shared currency. But the current geopolitical tensions with China and uncertainties on the EU Recovery plan are putting a lid on the upside momentum of the Euro.

After the sharp plunge in March, the EURUSD pair has been trading within the 1.08 to 1.09 range. Yesterday, the better-than-expected IFO Surveys in Germany has helped the pair to hold ground and hover around the 1.09 level. The recovery plan could mitigate the selling pressure and allow a probable move above 1.10 level if there is a compromise that satisfies the frugal four.

EURUSD

Source: Bloomberg Terminal

The immediate attention turns to the European Commission which is supposed to unveil a draft recovery plan on May 27th, 2020.

By Deepta Bolaky
 @DeeptaGOMarkets

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

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