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“Unless there are major negative surprises, the ECB has room for a second rate cut,” European Central Bank policymaker Pierre Wunsch told Reuters in an interview.
Additional quotes
“A small deviation from expectations will not change this opinion significantly.”
“Subsequent moves should only come once.” European Central Bank “Confident that inflation is heading towards 2%.”
Market reaction
As of the time of writing, EUR/USD The pair is losing 0.09% on the day to trade near 1.0730, awaiting Euro-zone Preliminary inflation readings to give fresh impetus.
Frequently Asked Questions about the European Central Bank
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank of the eurozone. The ECB sets interest rates and conducts monetary policy for the area. The ECB’s primary mission is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is to raise or lower interest rates. Relatively high interest rates tend to strengthen the euro and vice versa. The Governing Council of the ECB makes monetary policy decisions at meetings held eight times a year. The decisions are made by the heads of the eurozone’s national banks and six permanent members, including the president of the ECB, Christine Lagarde.
In extreme cases, the ECB can enact a policy tool called quantitative easing. Quantitative easing 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. Quantitative easing typically weakens the euro. Quantitative easing is a last resort when lowering interest rates is unlikely to achieve its goal of price stability. The ECB used it during the Great Financial Crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and during the Covid pandemic.
Quantitative tightening is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery begins and inflation starts to rise. While in quantitative easing the ECB buys government and corporate bonds from financial institutions to provide them with liquidity, in quantitative tightening the ECB stops buying more bonds, and stops reinvesting the principal due on the bonds it already holds. This is usually positive (or bullish) for the euro.
