|

ECB's Nagel: June rate decision will depend on incoming data

European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel said on Wednesday that June's interest rate decision will depend on incoming data.

Nagel explained that they don't yet know the exact impact from tariffs on inflation and the economy and noted that they will publish new staff projections next month. He added that central banks need to get used to managing the uncertainty.

Market reaction

EUR/USD preserves its bullish momentum following these remarks. At the time of press, EUR/USD was up 0.5% on the day at 1.1240.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

AUD/USD remains below 0.7000 amid light trading

AUD/USD fills a modest bearish gap on Monday, but remains below 0.7000 in the Asian session amid holiday-thinned liquidity. The US Dollar attempts a bounce even as US bond yields pull back from multi-year highs, limiting the pair. Moreover, diminishing odds of another RBA rate hike in November cap the Aussie.

USD/JPY hovers above 158.00 amid Japan/ US holiday

USD/JPY extends its range-bound price action into a new week, trading above 158.00 as bulls remain on high alert amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, softer US bond yields keep US Dollar bulls on the back foot and cap the pair's upside. However, geopolitical uncertainties could limit losses for the safe-haven buck amid thin liquidity due to a holiday in Japan and the US.

Gold  remains vulnerable below $4,200 on Fed hike bets

Gold is under mild selling pressure on Monday, trading at around $4,170. The US Dollar advances modestly in thin trading, supported by bets that the Federal Reserve will hike rates at least one more time before year-end.

Bitcoin struggles as ETF outflows, geopolitical uncertainty weigh

Bitcoin hovers around $83,600 on Monday after a 3.1% correction last week. US-listed spot ETFs recorded an outflow of $681.10 million last week, snapping the three-week inflow streak. Geopolitical uncertainty and mixed signals keep investors cautious.

The week ahead: A critical week as earnings and CPI test market

The Oil price is relatively stable this morning, and US and European stock markets are poised to open higher, as risk sentiment shrugs off an escalation in the Middle East and concerns about rising bond yields.

Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?