The publication of the European Central Bank's minutes from the December 2020 meeting put pressure on the euro, as members of the governing council disagreed on what additional monetary stimulus was needed during the last meeting. However, all members of the committee recognized the need to expand the asset repurchase program, the question remained only in its scope. The minutes also say that the expected form of economic recovery is now very different from the V and U-shaped.
Now, to maintain favorable financing conditions, additional credit assistance is required, which should include the economic consequences that have occurred and will still occur due to the second lockdown of the European economy as a result of the second wave of the coronavirus pandemic. At the end of last year, board members also discussed the possibility of a downward revision of the projected inflation trajectory due to the risks of weakening inflation expectations.
The published report from the meeting, which took place on December 9-10, 2020, also contains concerns related to the high exchange rate of the European currency, which will lead to more negative consequences and will become another deterrent to inflationary growth. Let me remind you that in the 4th quarter of 2020, the European currency seriously strengthened against the US dollar, putting pressure on import prices.
Let me remind you that following the meeting, the Board of Governors ultimately decided to increase the bond repurchase program by 500 billion euros, bringing it to the level of 1.85 trillion euros. The package was approved only after key European officials, together with the president of the European Central Bank, came to the conclusion that it is not necessary to spend the entire amount, and the allocation of funds will be carried out as necessary.
Let me remind you that yesterday there was a speech by the president of the European Central Bank, Christine Lagarde, which put pressure on the euro. Lagarde said that despite the spread of the coronavirus and the resumption of quarantine, the European Central Bank's expectations for economic growth in the eurozone are still very positive.
The head of the ECB noted that many of the uncertainties that previously clouded the prospects for economic recovery have now cleared up. We are talking about the US elections and the Brexit trade deal with the UK, as well as the start of vaccination in the EU. At the same time, Lagarde warned that monetary policy and the support that it provides to the entire system will continue in the same volumes.
Today's report on German GDP growth in 2020 once again reminded investors how difficult last year was. After a decade of growth, the German economy has experienced a deep recession - which is comparable to the financial crisis of 2008-2009. Today's Destatis report shows that the gross domestic product of the first-largest European economy fell by 5% in 2020, following the 0.6% growth seen in 2019. It is worth noting that the economic downturn was less severe than in 2009 when GDP fell by 5.7%. Economists had expected GDP to fall by 5.3%.
Such a sharp drop was directly due to the fact that almost all sectors of the economy were hit by the coronavirus pandemic. In industry, which accounts for just over a quarter of the entire economy, economic indicators sank by 9.7%. But the biggest decline was in the services sector.
As for the less significant financial indicators, it is worth mentioning the report on housing prices in the eurozone, which continued to grow in the 3rd quarter of 2020. According to Eurostat, house prices increased by 4.9% per year, which corresponded to the same growth rate as in the 2nd quarter of last year. Among the member countries for which data are available, the highest annual growth in house prices was recorded in Luxembourg, Poland, and Austria, while prices in Cyprus and Ireland, on the contrary, fell.
As for the technical picture of the EURUSD pair, it seems that the pressure on the European currency will continue. If the bulls fail to regain the range of 1.2180 today and the market remains below this level, we can expect a re-return of risky assets to the lows of the month in the area of 1.2130 and their update, which will open a direct opportunity for the euro to fall to the area of 1.2080 and 1.2010. It will be possible to talk about a reversal of the downward trend only if a bad report on inflation in the US leads to a powerful bullish impulse and a breakdown of the maximum of 1.2225.
