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ECB’s Nagel anticipates another hike amid rising second-round risks
With inflation pressures persisting, Bundesbank President Joachim Nagel signalled that another interest rate increase would be needed from the European Central Bank (ECB). Nagel also sits on the ECB’s Governing Council.
Delivering a keynote address at the 79th Siemens Bankers Conference on Friday, Nagel said: “If the situation stays as it is, it seems highly probable that we’ll have to act again,” and warned that month-on-month price increases heighten the risk of second-round effects.
On core inflation, he observed that it “is still elevated, and short-term inflation expectations have risen in line with the jump in headline inflation.”
Nagel Signals Further Action Is Highly Likely:
Further ECB action is highly probable.
Upward pressure is evident in the early stages of the pricing chain.
Near-term inflation expectations have moved higher.
The outlook has worsened since September.
Euro Performs Best Against Australian Dollar Today
Today’s percentage movements in the euro (EUR) against the major currencies listed appear in the table below. The euro’s strongest performance was against the Australian dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.23% | 0.21% | 0.03% | 0.02% | 0.48% | 0.40% | 0.41% | |
| EUR | -0.23% | -0.03% | -0.19% | -0.21% | 0.24% | 0.17% | 0.18% | |
| GBP | -0.21% | 0.03% | -0.19% | -0.16% | 0.26% | 0.20% | 0.21% | |
| JPY | -0.03% | 0.19% | 0.19% | -0.01% | 0.45% | 0.36% | 0.38% | |
| CAD | -0.02% | 0.21% | 0.16% | 0.00% | 0.46% | 0.38% | 0.39% | |
| AUD | -0.48% | -0.24% | -0.26% | -0.45% | -0.46% | -0.07% | -0.07% | |
| NZD | -0.40% | -0.17% | -0.20% | -0.36% | -0.38% | 0.07% | 0.02% | |
| CHF | -0.41% | -0.18% | -0.21% | -0.38% | -0.39% | 0.07% | -0.02% |
Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the euro on the left and following its row across to the US dollar, for instance, gives the percentage change for EUR (base)/USD (quote).
ECB Policy and Its Impact on the Euro Explained
Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the eurozone’s central bank, setting interest rates and overseeing the region’s monetary policy. Maintaining price stability is the ECB’s principal mandate, meaning inflation should be kept at around 2%. It chiefly pursues this objective through increases or reductions in interest rates. Higher rates relative to those elsewhere generally strengthen the euro, while 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 the eurozone’s national central banks and six permanent members, among them ECB President Christine Lagarde.
When conditions are extreme, the European Central Bank can turn to quantitative easing (QE). Under this policy, the ECB creates euros to purchase assets, typically government or corporate bonds, from banks and other financial institutions. The euro generally weakens as a result. Reserved as a last resort, QE is used when interest rate cuts alone are unlikely to deliver price stability. The ECB deployed it during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the Covid pandemic.
Once economic recovery is under way and inflation begins to climb, quantitative easing can be followed by its opposite, quantitative tightening (QT). Under QE, the European Central Bank (ECB) supplies financial institutions with liquidity by purchasing government and corporate bonds. With QT, it instead halts further bond purchases and no longer reinvests principal repayments from its existing bonds as they mature. This is generally supportive, or bullish, for the euro.
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