ECB's Rehn: Significant weakening of Dollar dominance unlikely
European Central Bank (ECB) policymaker Olli Rehn said on Thursday that he considers a raping and significant weakening of the US Dollar (USD) unlikely, per Reuters.
Key takeaways
"US President Donald Trump pressure on Fed's independence could have substantial global effects on financial markets and real economy."
"Euro Area inflation being at its 2% target is linked to the ECB's independent decision-making."
"Euro Area growth has proven more resilient than expected, while inflation is slowing to below 2% target."
"We at the ECB keep a close eye on the economy and stand ready to act if needed."
Market reaction
EUR/USD showed no immediate reaction to these comments and was last seen trading marginally higher on the day at 1.1642.
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
FXStreet
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.
