December rate hike signalled by ECB’s Nagel amid rising inflation risks

A December rate rise by the European Central Bank (ECB) “is very likely to be necessary.” That was the assessment on Tuesday from Joachim Nagel, President of the Bundesbank and a member of the ECB Governing Council.

With inflationary pressure “higher than expected in September,” Nagel said the deflationary scenario was deteriorating. He also stressed that the ECB can “and must prevent an energy price spike from causing broad-based inflation.”

December Rate Rise: Main Points

December is very likely to require a rate increase

Price pressures exceed September expectations, bringing the adverse scenario closer

We must, and can, stop an energy price surge from feeding into broad-based inflation

I am confident France will bring its budget problems under control

Monetary policy is not the tool for this task

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Euro Performance Today

The euro (EUR) recorded its strongest performance against the Japanese yen today. The table below sets out its percentage moves against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.01%	-0.08%	0.46%	0.06%	0.37%	0.02%	0.31%
EUR	0.01%		-0.06%	0.46%	0.07%	0.40%	0.03%	0.32%
GBP	0.08%	0.06%		0.53%	0.14%	0.45%	0.07%	0.38%
JPY	-0.46%	-0.46%	-0.53%		-0.39%	-0.09%	-0.43%	-0.14%
CAD	-0.06%	-0.07%	-0.14%	0.39%		0.31%	-0.04%	0.25%
AUD	-0.37%	-0.40%	-0.45%	0.09%	-0.31%		-0.35%	-0.07%
NZD	-0.02%	-0.03%	-0.07%	0.43%	0.04%	0.35%		0.29%
CHF	-0.31%	-0.32%	-0.38%	0.14%	-0.25%	0.07%	-0.29%

To read the heat map, select the base currency in the left-hand column and the quote currency in the top row. Each cell gives the percentage change between those major currencies. For example, choosing the euro on the left and following its row across to the US dollar gives the percentage move in EUR (base)/USD (quote).

ECB: Key Questions Answered

The ECB’s Role and Its Impact on the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the eurozone’s reserve bank. Responsibility for the region’s interest rates and monetary policy rests with the ECB. Keeping inflation at around 2% is central to its primary mandate of price stability. Interest rate increases and cuts are its main means of achieving that objective. Higher rates relative to those elsewhere generally strengthen the euro; lower rates tend to have the opposite effect. Monetary policy is decided by the ECB Governing Council, which meets eight times a year. The decision-makers comprise the heads of eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

Quantitative Easing (QE): How It Influences the Euro

When conditions are extreme, Quantitative Easing (QE) is a policy option available to the European Central Bank. Under QE, the ECB prints euros to purchase assets from banks and other financial institutions, typically government or corporate bonds. The euro usually weakens as a result. Used as a last resort, QE is deployed when interest rate cuts alone are unlikely to deliver price stability. The ECB employed it during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the Covid pandemic.

Quantitative Tightening (QT): Its Effect on the Euro

Once an economic recovery is under way and inflation begins to rise, QE can be followed by its reverse: Quantitative tightening (QT). Under QE, the European Central Bank (ECB) supplies liquidity to financial institutions by purchasing government and corporate bonds. With QT, it ends further bond purchases and no longer reinvests principal repaid as its existing holdings mature. This is generally supportive, or bullish, for the euro.