Weekly Market Update (26 April 2021) – Bank of Canada first to cut back on QE

26 Apr 2021, 08:50 · Views 168

ByLCMS Traders FX Analysis Team

APR 26, 2021

(1) The Bank of Canada (BoC) cut back on quantitative easing while holding interest rate unchanged at 0.25% during its monetary policy meeting last week. With effect from this week, weekly net purchases of government bonds will be readjusted to $3 billion from the previous $4 billion. The decision to tighten monetary policy comes as Canadian’s economic growth has been stronger than the central bank’s expectation. As a result, the Canadian dollar strengthened against the other major currencies.

(2) Unlike its Canadian counterpart, the European Central Bank (ECB) held monetary policy unchanged and hinted at a potential increase in quantitative easing during their meeting last week. For now, the Pandemic Emergency Purchase Programme (PEPP) will continue to run until the end of March 2022 with a total envelope of €1,850 billion while the Asset Purchase Programme (APP) will continue to run at a monthly pace of €20 billion. In an effort to support the European countries in their battle against the pandemic, the central bank is expecting purchases under the PEPP to increase at a faster pace in the upcoming months. The possibility of an increase in quantitative easing led to the weakening of euro.

(3) The UK economy is starting to pick up. Its employment data reported a higher-than-expected decline in the number of people claiming for unemployment benefits while unemployment inched lower. Due to the easing of pandemic restrictions, the services sector in April expanded at the fastest pace since August 2014 while the manufacturing sector expanded at the fastest pace since July 1994. Furthermore, consumer spending continues to rise.

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