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December rate hike remains an obvious step despite energy relief, says ECB’s Nagel
A December interest rate increase is clearly necessary, according to Bundesbank President Joachim Nagel, reinforcing the case for a rise next month. Speaking to Bloomberg TV, Nagel, who also sits on the European Central Bank (ECB) Governing Council, said that “it is rather obvious that we have to increase in December,”.
The fall in energy prices since the US midterm elections was welcome news, Nagel added. Although market expectations do not determine the central bank’s decisions, he emphasised that “we’ll do what’s needed to return inflation to 2%”.
Nagel sets out key policy messages:
A December increase is clearly necessary
Lower energy prices since the US midterms are welcome
Market expectations matter but do not determine decisions
I see no risk of fiscal dominance
We will take the action needed to bring inflation back to 2%
France needs to address its fiscal challenges
Euro Performs Best Against Australian Dollar Today
The euro (EUR) recorded its strongest performance against the Australian dollar today. Its percentage moves against the major currencies listed are set out in the table below.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | 0.49% | 0.46% | 0.38% | 0.75% | 0.48% | 0.56% | |
| EUR | -0.37% | 0.10% | 0.05% | 0.01% | 0.36% | 0.11% | 0.18% | |
| GBP | -0.49% | -0.10% | -0.06% | -0.09% | 0.26% | -0.01% | 0.08% | |
| JPY | -0.46% | -0.05% | 0.06% | -0.04% | 0.32% | 0.04% | 0.13% | |
| CAD | -0.38% | -0.01% | 0.09% | 0.04% | 0.36% | 0.08% | 0.17% | |
| AUD | -0.75% | -0.36% | -0.26% | -0.32% | -0.36% | -0.27% | -0.19% | |
| NZD | -0.48% | -0.11% | 0.01% | -0.04% | -0.08% | 0.27% | 0.09% | |
| CHF | -0.56% | -0.18% | -0.08% | -0.13% | -0.17% | 0.19% | -0.09% |
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) in the corresponding cell.
ECB Policy Explained
Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the eurozone’s reserve bank, setting interest rates and overseeing monetary policy across the region. Maintaining price stability is the ECB’s principal mandate, which means keeping inflation at around 2%. Adjustments to interest rates are its main means of achieving this aim. Higher relative interest rates 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 heads of the eurozone’s national central banks take these decisions alongside six permanent members, among them ECB President Christine Lagarde.
When circumstances are extreme, the European Central Bank can turn to Quantitative Easing (QE). Under this policy, the ECB prints euros to purchase assets, typically government or corporate bonds, from banks and other financial institutions. The euro usually weakens as a result of QE. This is a last-resort measure used when interest rate cuts alone are unlikely to deliver price stability. The ECB deployed QE during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the Covid pandemic.
Once an economic recovery has begun and inflation starts to climb following QE, the central bank can undertake its reverse: Quantitative Tightening (QT). Under QE, the European Central Bank (ECB) supplies liquidity to financial institutions by purchasing government and corporate bonds. QT instead involves halting further bond purchases and ceasing to reinvest the principal repaid as existing bond holdings mature. This is generally supportive, or bullish, for the euro.
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