- EUR/USD dips 0.19%, in response to the ECB's decision to hold rates and cautious remarks from President Christine Lagarde.
- The US economy outperforms expectations with a 3.3% QoQ GDP growth in Q4 2023, surpassing forecasts but lower than the previous quarter.
- Key upcoming events include further comments from ECB President Lagarde and the release of the Eurozone's Consumer Confidence and US Core PCE Price Index data.
The EUR/USD extends its losses past the European Central Bank (ECB) monetary policy decision to keep the main deposit rate unchanged as the ECB’s President Christine Lagarde's press conference finished. That and solid US GDP figures kept the major down by 0.19%, trading at 1.0864 after hitting a high of 1.0901.
Lagarde’s comments and US economic data weighed on the Euro as the pair edges lower
Summarizing ECB’s President Christine Lagarde's comments at the press conference, she said that inflation is expected to ease further over 2024 while mentioning that growth risks are tilted to the downside. Lagarde added that inflation could fall more quickly if energy prices evolve, though geopolitical tensions in the Middle East pose upside risks to inflation. When asked about rate cuts, she added that the Governing Council agreed they need to be data-dependent
Across the pond, a busy docket in the US revealed the economy for the last quarter of 2023 rose by 3.3% QoQ, exceeding forecasts of 2% and lower than Q3’s 4.9%, according to the Gross Domestic Product (GDP) report revealed by the US Bureau of Economic Analysis (BEA). At the same time, Durable Goods Orders in December were unchanged, blamed on a slump in transportation equipment manufacturing.
On another date, the US Bureau of Labor Statistics revealed that Initial Jobless Claims for the week ending on January 20 increased by 214K, exceeding the previous week's reading and forecasts of 200K.
Ahead on the week. ECB’s President Lagarde will cross wires at around 16:15 GMT today. The Eurozone’s (EU) docket will feature Germany’s Gfk Consumer Confidence on Friday. On the US front, the Federal Reserve’s preferred gauge for inflation, the Core Personal Consumption Expenditure (PCE) Price Index, is expected to drop from 3.2% to 3% YoY. In comparison, general PCE is foreseen at 2.6%, unchanged from the last report.
EURUSD Key Technical Levels
ECB FAQs
What is the ECB and how does it influence the Euro?
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.
What is Quantitative Easing (QE) and how does it affect the Euro?
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.
What is Quantitative tightening (QT) and how does it affect the Euro?
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.
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