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  • I expect the APP to end very early in the third quarter
  • This would allow a rate hike to take place in July, in line with forward guidance
  • If inflation stabilizes around 2% over the medium term, a further gradual normalization towards a neutral rate will be appropriate
  • But the overall pace and magnitude of adjustment cannot be determined ex ante
  • The current situation is complicated by the presence of negative supply shocks
  • There are arguments for progressivity, optionality and flexibility when adjusting monetary policy
  • We have an important benchmark for policy, which is to achieve 2% inflation over the medium term
  • The ECB will take all necessary measures to do so
  • Full Blog

If there were any doubts about the ECB’s recent hawkish turn, they seem to be quashed by Lagarde’s comments above. This is a big signal of a significant policy change from the ECB, i.e. if things are actually going as planned.

The big question now is the risks of stagflation and how the ECB will cope if the Eurozone economy faces a recession later in the year. This is the main caveat to any aggressive tightening policy cycle they might have been planning.

For now though, the euro likes what it hears as the ECB ‘owl’ seems to have chosen sides. EUR/USD

EUR/USD

The EUR/USD is the currency pair comprising the single currency of the European Union, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The rate of the pair indicates how many euros are needed to buy a dollar. For example, when EUR/USD is trading at 1.2, it means that 1 euro equals 1.2 dollars. Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the Euro (EUR) is the second most traded currency in the world, behind the US Dollar. This currency pair is the most traded and liquid currency pair in the market. As the most popular trading pair, EUR/USD is a staple of all brokerage offerings and often has some of the lowest spreads compared to other pairs. Ultimately, the currency trails the two most economical blocs in the world and sees the most volume for this reason. EUR/USD has a wide range of factors that influence its rates. On the Euro side, Eurozone economic data as well as internal bloc factors can easily impact rates. Even smaller member states can effectively weigh on the euro, as seen in Greece during bailout talks in the 2010s. Alternatively, developments in the US and at the Federal Reserve generally affect the EUR/ usd. Many examples include bailouts during the financial crisis, tax cuts under the Trump administration, and Covid-19 relief measures, among others.

The EUR/USD is the currency pair comprising the single currency of the European Union, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The rate of the pair indicates how many euros are needed to buy a dollar. For example, when EUR/USD is trading at 1.2, it means that 1 euro equals 1.2 dollars. Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the Euro (EUR) is the second most traded currency in the world, behind the US Dollar. This currency pair is the most traded and liquid currency pair in the market. As the most popular trading pair, EUR/USD is a staple of all brokerage offerings and often has some of the lowest spreads compared to other pairs. Ultimately, the currency trails the two most economical blocs in the world and sees the most volume for this reason. EUR/USD has a wide range of factors that influence its rates. On the Euro side, Eurozone economic data as well as internal bloc factors can easily impact rates. Even smaller member states can effectively weigh on the euro, as seen in Greece during bailout talks in the 2010s. Alternatively, developments in the US and at the Federal Reserve generally affect the EUR/ usd. Many examples include bailouts during the financial crisis, tax cuts under the Trump administration, and Covid-19 relief measures, among others.
Read this term fell from 1.0610 to 1.0635. However, I would be remiss not to mention that money markets have already priced in significantly the ECB’s rate hikes for this year – at least four 25 basis point rate hikes are already priced in.

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