ECB’s Nagel: June rate cut not necessarily followed up by a series of rate cuts

Source Fxstreet
Apr 24, 2024 07:23

European Central Bank (ECB) policymaker and Bundesbank Chief Joachim Nagel said on Wednesday that a June interest rate cut may not be necessarily followed up by a series of rate cuts.

Additional comments

Services inflation remains high, driven by continued strong wage growth.

Not fully convinced that inflation will actually return to target in a timely, sustained manner.

Given the uncertainty, we cannot pre-commit to a particular rate path.

Market reaction

EUR/USD is easing below 1.0700 despite Nagel’s hawkish comments. The pair is currently trading at 1.0692, losing 0.07% so far.

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
US: Initial Jobless Claims increased above estimates last weekUS citizens that applied for unemployment insurance benefits increased by 222K in the week ending May 11, according to the US Department of Labor (DoL) on Thursday.
Source  Fxstreet
US citizens that applied for unemployment insurance benefits increased by 222K in the week ending May 11, according to the US Department of Labor (DoL) on Thursday.
placeholder
Fed's Jefferson: Inflation is a source of concernFederal Reserve Vice-Chairman Phillip Jefferson stated on Monday that he advocates maintaining current interest rates until there is evident moderation in price pressures.
Source  Fxstreet
Federal Reserve Vice-Chairman Phillip Jefferson stated on Monday that he advocates maintaining current interest rates until there is evident moderation in price pressures.
placeholder
BoE set to leave interest rates unchanged amid increasing expectations of cutsThe Bank of England (BoE) is set to hold its policy rate flat for a sixth meeting in a row on Thursday amid persistent disinflationary pressure in the UK and investors’ repricing of interest rate reductions earlier than anticipated.
Source  Fxstreet
The Bank of England (BoE) is set to hold its policy rate flat for a sixth meeting in a row on Thursday amid persistent disinflationary pressure in the UK and investors’ repricing of interest rate reductions earlier than anticipated.
goTop
quote