European Central Bank (ECB) President Christine Lagarde said Friday that the eurozone disinflation process was fixed on the track, per Reuters.
Lagarde reiterated that he was not pre-committing on a particular rate of rate and noted that the ever-increasing trade tensions complicated global insight into inflation.
Market reaction
EUR/USD will remain under moderate bearish pressure following these comments. At the time of press, the pair traded near 1.1350, where it dropped 0.35% during the day.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the Reserve Bank for Eurozone. The ECB sets interest rates and is in charge of the financial policy for the region. The main command of the ECB is to maintain price stability, which means maintaining inflation by around 2%. Its main tool for achieving it is by increasing or decreasing interest rates. Pretty high interest rates usually result in a stronger euro and vice versa. The ECB Governing Council is making financial policy decisions at meetings held eight times a year. The decisions were made by the leaders of Eurozone National Banks and six permanent members, including ECB president Christine Lagarde.
In extreme situations, the European Central Bank can create a policy tool called EASING volume. QE is the process by which the ECB prints the euro and uses them to buy properties – common government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker euro. QE is a final way when the decrease of interest rates is not likely to achieve the purpose of price stability. The ECB used it during the great financial crisis in 2009-11, in 2015 when inflation remained tough low, as well as during the covid pandemic.
The quantity of tightening (qt) is the reversal of QE. It is carried out after QE when an economic recovery is carried out and inflation begins to rise. While QE the European Central Bank (ECB) has bought government and corporate bonds from financial institutions to give them liquidity, in QT the ECB stops buying more bonds, and stops re -avoiding the principal that is exploring the bonds it holds. It is usually positive (or bullish) for the euro.
