Jens Weidmann, outgoing European Central Bank Governing Council member and Bundesbank President, said on Tuesday that the ECB should be wary of any pressure to maintain its very loose policy for longer than the price outlook dictates, per Reuters.
ECB governing council member and Bank of Spain governor Pablo Hernandez de Cos said on Tuesday that recent developments anticipate a significant downward revision to the 2021 economic growth outlook, plus a more moderate slowdown in 2022.
"I’m confident that those net purchases will continue throughout next year. Beyond that, I don’t know,” the European Central Bank Vice President Luis de Guindos said in an interview with Les Echos on Tuesday.
Will 2022 be like 2019? That is what many people are hoping for, after nearly two years with covid. Hopes for next year also seem to guide the European Central Bank, which is why EUR/USD has room to lose its recent gains – related to weak US GDP. ECB President Christine Lagarde cited three critical factors that have pushed inflation higher.
The European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.
Promises made, promises kept – European Central Bank President Christine Lagarde has delivered a dovish policy shift, exceeding market expectations and defying hawkish members.
The European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.
EUR/USD edged higher in the early American session and managed to erase its daily losses. Ahead of Fed Chair Powell's testimony, the pair is closing in on 1.1350. Earlier in the session, the data from the US showed that employment in the private sector rose by 534,000 in April, surpassing the market expectation of 525,000.
GBP/USD continues to move sideways around the 1.3300 handle on Wednesday after the data from the US failed to trigger a significant market reaction. The ADP Employment Change arrived at +534K in November, compared to the market expectation of 525,000. FOMC Chairman Powell will testify at 1500 GMT.
Gold gained traction after dropping below $1,780 in the early European session and climbed toward $1,790. Ahead of FOMC Chairman, the 10-year US Treasury bond yield is up more than 1% on the day, limiting gold's upside for the time being.
BTC price is consolidating while it tries to move higher, but Ethereum price seems to be enjoying a full-fledged rally as it comes closer to setting up new highs. Ripple price, on the other hand, is struggling to find bullish momentum.
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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.
