Subtle changes to language can be meaningful to EUR/USD traders – the European Central Bank has left its interest rates unchanged but seems more upbeat, allowing EUR/USD to rise. Here are three changes that have pushed the common currency higher and may continue doing so.
Jens Weidmann, European Central Bank (ECB) Governing Council member and Bundesbank President, said on Wednesday that the latest round of bond purchases risks weakening the market's ability to discipline governments, per Reuters. "This problem (of weaker market discipline) in particular has been exacerbated by the recent increase in the PEPP," Weidmann added. "We must be careful that the emergency monetary policy measures do not become permanent. They must be scaled back after the crisis."
In a press release published on Tuesday, the European Central Bank called on banks to refrain from or limit dividends until 30 September 2021. "Dividends to remain below 15% of cumulated 2019-20 profits and not higher than 20 basis points of CET1 ratio." "ECB reiterates supervisory expectation that banks exercise extreme moderation on variable remuneration."
The Euro area price pressures will remain subdued for a prolonged period, the European Central Bank (ECB) Executive Board Member Fabio Panetta said Monday. "We can guarantee our commitment to support the recovery." "For monetary policy, this means providing certainty about financing conditions well into the future."
It is almost Christmas – and while the European Central Bank holds socially distanced events, it has been able to grant gifts to markets. The Frankfurt-based institution will expand its Pandemic Emergency Purchase Program (PEPP) by €500 billion and will run it at least through March 2022.
ECB President Lagarde has laid down a gloomy picture of the economy under the second covid wave. She committed to providing additional stimulus measures in the December meeting. EUR/USD is set to remain under pressure and focused on coronavirus statistics.
"We do not target the FX rate" – Christine Lagarde, President of the European Central Bank. These words, alongside a headline saying the ECB prefers to remain calm on the exchange rate, sent EUR/USD toward 1.19. It is uncommon for a central bank to comment on FX – but investors were eyeing such remarks following previous murmurings about the value of the euro.
At its monetary policy meeting held on September10th, the Governing Council of the European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.
Lagarde has picked the low-hanging fruit – and now needs her political skills to poke policymakers on the fiscal front – without scaring markets, a fine balancing act. The European Central Bank is set to leave its policy unchanged in its July meeting. The Frankfurt-based institution is set to take a break after topping up its Pandemic Emergency Purchase Program (PEPP) with €600 billion in June. This bond-buying scheme – which has fewer constraints than previous ones – now totals €1.35 trillion.
AUD/USD holds the lower ground, testing the 0.7700 level amid broad risk-aversion that has triggered a bounce in the safe-haven US dollar. Uncertainty over the US stimulus, worries over new covid strain and lockdowns weigh on the risk appetite.
GBP/USD remains depressed, heading towards 1.3650. The cable responds to the fresh risk-off mood after flashing a two-day losing streak. UK virus data suggests an improvement in covid conditions, Health Secretary Matt Hancock gives credits to activity restriction measures.
Gold is on the verge of an upside extension on a break of weekly resistance. XAU/USD is making progress with respect to the bullish market structure following a period of consolidation in recovery of the daily correction.
XRP/USD bounces off intraday low of 0.2647, stays below 21-day SMA for fifth day. As per the latest report from Messari, Bitcoin and Ripple are the most popular cryptocurrencies in South Korea.
The inability of USD-bulls to push further north of recent tops in the 91.00 region in past sessions prompted sellers to return to the markts and shifted the attention to the potential continuation of the downtrend.
The European Central Bank is the central bank empowered to manage monetary policy for the Eurozone. With its beginnings in Germany 1998, the ECB is empowered to maintain price stability in the euro area, so that the euro’s purchasing power is not eroded by inflation. As an entity independent of individual EU countries and EU institutions, the ECB aims to ensure that the year-on-year increase in consumer prices is less than, but close to 2% over the medium term. Another of its tasks is the one of controlling the money supply. This involves, for example, setting interest rates throughout the euro area. The European Central Bank’s work is organized via the following decision-making bodies: the Executive Board, the Governing Council and the General Council. Christine Lagarde is the President of this organism since November 1st 2019. Her speeches, statements and declarations are an important source of volatility, especially for the Euro and the currencies traded against the European currency.
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Christine Lagarde was born in 1956 in Paris, France. Graduated from Paris West University Nanterre La Défense and became President of the European Central Bank in November 1st 2019. Prior to that, she served as Chairman and Managing Director of the International Monetary Fund between 2011 and 2019. Lagarde previously held various senior ministerial posts in the Government of France: she was Minister of the Economy, Finance and Industry (2007–2011), Minister of Agriculture and Fishing (2007) and Minister of Commerce (2005–2007).
Prior to the Rate Decision:
After the Rate Decision:
The decision always has an effect on the Euro.
When the interest rate is increased the European Central Bank is literally selling government securities to large financial firms. In turn, the financial organizations are paying in Euros for these securities. This effectively decreases the amount of currency circulating in the economy. A decreasing supply leads to higher demand, and therefore causes the value of the Euro to appreciate.
When the interest rates are decreased, the European Central Bank floods the market with Euros. This is done by the purchasing government securities from financial organizations. In return for the securities, these banks and financial deals are paid in Euros, therefore increasing the supply of Euros in the economy. As supply increases, the value of the Euros depreciates.
The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.
In practical terms, QE means that central banks create money out of nothing to buy securities, such as government bonds. This new money swells the size of bank reserves by the quantity of assets purchased and that’s why this programme is called Quantitative Easings. The money supply is intended to flood financial institutions with capital in an effort to stimulate lending and increase liquidity.
Much of the governments’ debt is held by banks in the Eurozone and the ECB wants them to give more credits. If the European Central Bank buys government bonds, their prices rise and profitability drop even more. This is a liquidity-providing operation that weakens the value of the euro. This depreciation makes European exports cheaper and competitive, and ultimately, helps in recovering. In addition, as a result of the stimulus to internal and external consumption, the ECB combats the risk of deflation, a widespread and prolonged drop in prices, as well as the high unemployment.
The long term refinancing operation (LTRO) is a cheap loan scheme for European banks that was announced by the European Central Bank towards the end of 2011 in a bid to help ease the eurozone crisis.
Round one was carried out on 21 December, when banks took €489 billion from the European Central Bank. The loans are due to be repaid within three years at a rate of 1%, and a second round will be launched on 28 February, with the results of how much money was requested due on 29 February.
As the eurozone crisis has escalated, banks have become less stable and have less money to lend. The objective of the LTRO is to boost cash flow in the market and avoid a severe credit crunch or collapse of the banking system.
