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EUR/CHF lifts slightly as ECB officials strike cautious tone

  • EUR/CHF edges higher after slipping to multi-week lows following the ECB decision.
  • The ECB keeps policy unchanged and reiterates a data-dependent, meeting-by-meeting approach.
  • The SNB maintains a stable policy stance as inflation pressure remains contained.

The Euro (EUR) trades slightly firmer against the Swiss Franc (CHF) on Friday after slipping to over three-week lows in the previous day following the European Central Bank’s (ECB) monetary policy decision. At the time of writing, EUR/CHF edges modestly higher around 0.9318, snapping a three-day losing streak.

The ECB left its three key policy rates unchanged on Thursday, in line with market expectations, keeping the Deposit Facility, Main Refinancing Operations and Marginal Lending Facility rates at 2.00%, 2.15% and 2.40%, respectively.

In its policy statement, the ECB’s Governing Council reiterated its commitment to ensuring that inflation stabilises at its 2% target over the medium term. Policymakers stressed that future decisions will remain data-dependent and taken on a meeting-by-meeting basis, guided by the inflation outlook, incoming economic and financial data, underlying price dynamics and the effectiveness of monetary policy transmission.

Several ECB policymakers crossed the wires on Friday, striking a cautious tone on the policy outlook. Madis Müller said it is too early to speculate on what happens beyond the near term, adding that markets expect rates to remain at current levels for at least six months.

Olli Rehn noted that the next ECB move is not necessarily upward and stressed that economic uncertainty remains elevated, reiterating that decisions will continue to be taken on a meeting-by-meeting basis.

José Luis Escrivá said it is unclear which direction rates will go next, while Álvaro Santos Pereira remarked that policy is in a good place but warned that shocks remain possible.

On the Swiss side, the economic calendar was relatively light this week. In its Q4 Quarterly Bulletin released on Wednesday, the Swiss National Bank (SNB) reiterated that it kept its policy rate unchanged at 0% at the December meeting, judging that inflation pressures over the medium term remain broadly stable. The central bank said its current stance remains appropriate to keep inflation within its price-stability range while continuing to support the economy.

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

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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