Lagarde on bond market rout: I always worry, that's my job
European Central Bank President Christine Lagarde said at the sidelines of the G7 finance ministers meeting in Paris, "I always worry, that's my job!” when asked if she was worried by a sell-off in global bond markets.
Meanwhile, European Union (EU) Valdis Dombrovskis, Commissioner for Economy and Productivity, has stated at the sidelines of the G7 meeting that wars in Ukraine and Iran will be discussed by G7 members. Dombrovskis reaffirms the need to open the Strait of Hormuz as soon as possible.
Market reaction
There seems to be no immediate reaction by the Euro (EUR) from ECB Lagarde's comments. While EUR/USD has recovered its early losses and has turned slightly positive to near 1.1633, as the US Dollar Index (DXY) falls back.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
