European Central Bank (ECB) Governing Council member Olli Rehn said on Friday that the slowdown in inflation alongside weakness in the Eurozone economy strengthened arguments to lower borrowing costs next month, per Bloomberg.
Key quotes
The growth outlook in Europe, especially manufacturing, is rather subdued.
In my eyes, this enforces the case for a rate cut in September.
We already have plenty of data to make our decision in September.
Disinflation and a weak economy support a September cut.
Downtrend in inflation is on track.
We are still seeing strong services inflation.
The disinflationary process has been ongoing since autumn 2022 and it's still going on.
Asked about 50 bps, says they always have to be open.
Says he doesn't want to commit to anything, data-dependent.
Market reaction
At the time of press, the EUR/USD pair was down 0.02% on the day at 1.1188.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD advances beyond 0.6400 after stellar Aussie jobs data
AUD/USD gained strong positive traction on Thursday following the release of upbeat Australian jobs data, which pointed to a still resilient labour market and forced investors to scale back their bets for a rate cut by the RBA in February.
USD/JPY retreats from two-week top; BoJ uncertainty could limit losses
USD/JPY drifts lower on Thursday and snaps a three-day winning streak to a two-week high touched the previous day. The downside, however, seems limited amid diminishing odds for another BoJ rate hike next week, which, along with the risk-on mood, could undermine the safe-haven JPY.
Gold price retains its bullish bias near two-week high on Fed rate cut optimism
Gold price stands firm near the $2,720-2,722 area, or over a two-week high on Thursday amid the likelihood of a Fed rate cut next week. Furthermore, geopolitical risks and trade war fears remain supportive of the bullish sentiment surrounding the safe-haven XAU/USD.
Ripple's XRP eyes massive rally after posting bullish flag, high profit-taking poses threat
Ripple's XRP continued its rally on Wednesday as it looks to test the upper boundary of a key flag channel. Following the recent price rise, investors booked profits worth nearly $800 million while options traders bet on the remittance-based token hitting the $5 mark.
BTC faces setback from Microsoft’s rejection
Bitcoin price hovers around $98,400 on Wednesday after declining 4.47% since Monday. Microsoft shareholders rejected the proposal to add Bitcoin to the company’s balance sheet on Tuesday.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.