European Central Bank Governing Council member and Bundesbank President Joachim Nagel stated Thursday that the ECB will need to re-evaluate the prevailing economic conditions. He further commented that proposed US tariffs pose a threat to global economic stability and could challenge the progress of monetary policy.
At the time of reporting, EUR/USD experienced a significant increase, rising 1.10% to approach the 1.1000 level.
The European Central Bank (ECB), headquartered in Frankfurt, Germany, serves as the central bank for the Eurozone, responsible for setting interest rates and managing monetary policy. Its primary objective is to maintain price stability, targeting an inflation rate of approximately 2%. The ECB primarily achieves this through adjustments to interest rates; higher rates typically strengthen the Euro, while lower rates tend to weaken it. The ECB Governing Council, comprised of the heads of Eurozone national banks and six permanent members, including ECB President Christine Lagarde, convenes eight times annually to make monetary policy decisions.
Quantitative Easing (QE) is an unconventional monetary policy tool employed by the ECB in exceptional circumstances. QE involves the creation of Euros to purchase assets, primarily government and corporate bonds, from banks and financial institutions. This process generally leads to a depreciation of the Euro. QE is implemented as a last resort when conventional interest rate reductions are deemed insufficient to achieve price stability. The ECB utilized QE during the Great Financial Crisis (2009-2011), in 2015 due to persistently low inflation, and during the COVID-19 pandemic.
Quantitative Tightening (QT) represents the reversal of QE and is implemented following an economic recovery and rising inflation. During QT, the ECB ceases the purchase of additional bonds and halts the reinvestment of principal payments from maturing bonds already held. This policy is generally considered positive, or bullish, for the Euro.
