Forex News
Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the July policy meeting and responds to questions from the press.
Key takeaways
"Decision was unanimous."
"There were some who asked whether we should consider a hike."
"Positioned adequately to wait."
"Will receive long list of fresh data before September meeting."
"Particularly attentive to any risk of second round effects."
"Not seeing second round effects yet."
"Gradual decline in wages still happening."
"Not giving any forward guidance."
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.
Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the July policy meeting and responds to questions from the press.
Key takeaways
"Risks to inflation tilted to upside."
"Energy shock could intensify further."
"Longer energy prices stay high, the likely to have second round impacts."
"Extreme weather events, climate crisis could drive up food prices."
"Have had some relatively benign developments since June decision."
"Post-MOU drop in Brent crude was quicker than anticipated."
"Studied density, durability, propagation of supply shock."
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
ING’s economists describe United Kingdom (UK) public finances as strained by rising spending pressures and high debt interest, despite ongoing fiscal consolidation via frozen tax thresholds and falling gilt issuance. They warn that potential policy shifts under Prime Minister Burnham, including changes to fiscal rules or tax allowances, could unsettle investors and re-focus attention on UK fiscal risks into the autumn budget.
Consolidation now, questions later
"Like much of Europe, there are plenty of reasons to be downbeat about the UK’s public finances. Spending pressures are growing – from defence to health and social care. Debt interest costs are high and rising, not helped by Britain’s large stock of index-linked bonds and increasing reliance on foreign investors (particularly hedge funds)."
"That said, the UK is also a rare example of a country undergoing some meaningful fiscal consolidation. Since 2021, the tax thresholds have been frozen in cash terms. And subsequent waves of inflation have dragged more and more people into higher tax brackets, increasing tax revenues as a share of GDP."
"Over recent weeks, investors had become more relaxed about Burnham’s appointment, following his commitment to stick to the existing fiscal rules. In theory, that precludes a stimulus package this autumn that would either materially increase gilt issuance or change the calculus for the BoE."
"But Burnham’s recent openness to bigger changes – including lifting the tax-free allowance and greater funding for social care – means a bolder budget can’t be ruled out. Investors will be particularly sensitive to any headlines on tweaks to the fiscal rules in the run-up to Burnham’s first budget this October or November."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the July policy meeting and responds to questions from the press.
Key takeaways
"Recent data points to some improvement in economic activitiy."
"Activity in services partly recovered."
"Digital services robust, partly on AI."
"Firms, households expect labour market to remain weaker than before conflict."
"Indicators suggest economic activity will remain modest."
"Energy shock feeding into higher prices."
"Firms expect to raise selling prices."
"Underlying inflation contained, full effect yet to play out."
"Survyes indicate moderate wage growth."
"Rising labour productivity helps contain unit labour cost growth."
"Most measures of longer-term inflation expectations stand at around 2%."
"Energy inflation likely to keep inflation well above target into first half of 2027."
"Inflation will then decline."
"Conflict a major source of uncertainty."
"Risks to growth tilted to downside."
"Higher energy prices will weigh on real incomes."
ECB flags persistent inflation risks despite modest recovery
The FXS Speechtracker score of 5.6/10, slightly above the historic 5.2/10 baseline, points to a mildly more impactful and cautiously hawkish tone. Lagarde acknowledges some improvement in economic activity and a partial recovery in services, with robust digital services partly driven by AI, but stresses that overall activity will remain modest and the labour market weaker than before the conflict, keeping growth risks tilted to the downside.
The hawkish tilt comes from repeated emphasis on the energy shock feeding into higher prices, firms planning to raise selling prices, and energy inflation likely to keep inflation well above target into the first half of 2027 before declining. While underlying inflation is described as contained and wage growth as moderate, rising labour productivity only partly offsets unit labour cost pressures, and longer-term inflation expectations around 2% suggest the Euro area remains anchored but vulnerable to prolonged energy-driven inflation, limiting scope for rapid policy easing.
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.
The Japanese Yen (JPY) continues to trade at historic lows, with USD/JPY pressing past year-to-date highs above the 163.00 handle, as a renewed surge in global Oil and Natural Gas prices has dealt a severe blow to the net-energy-importing Japanese economy.
While Japanese policymakers face an increasingly tough backdrop as global yields rise, speculation is mounting that the Bank of Japan (BoJ) could deliver an early rate hike to stem currency weakness. Institutional strategists remain divided on whether a single rate increase can reverse the Yen's slide or if a broader shift in Federal Reserve policy will be necessary to drive a lasting turnaround.
Energy shocks and rising yields create a challenging backdrop for Japan
According to MUFG, rising crude Oil and Natural Gas prices continue to exert heavy downward pressure on low-yielding currencies like the Yen. Verbal interventions from Finance Minister Satsuki Katayama have yielded minimal impact as markets gauge the likelihood of immediate currency intervention.
While reports suggest BoJ officials are open to hiking rates faster than consensus, MUFG warns that domestic rate increases may not be enough on their own.
The Bloomberg report supports our forecast for the BoJ to hike rates as soon as in September. While rising yields in Japan would offer more support for the yen, we are not convinced another BoJ hike on its own will reverse the weakening trend.
Fundamentals and expected Fed moves point to a Yen recovery
Taking a longer-term approach, Commerzbank acknowledges that near-term headwinds have prolonged the Yen's weakness, prompting a slight upward revision to the bank's near-term USD/JPY trajectory.
However, Commerzbank remains firm in its assessment that economic fundamentals will eventually prevail and drive a Yen recovery. The bank expects that Federal Reserve rate cuts next year will remove a major source of US Dollar strength, setting off a clear rally for the Yen.
We are therefore adjusting our forecast slightly upward (weaker yen), but we still expect the yen to appreciate by the end of next year (...) Next year, our economists also continue to anticipate interest rate cuts by the Fed. Such a development would certainly weigh on the US Dollar over the coming months.
Banks project near-term vulnerability followed by more favorable long-term trajectory
The banks project an environment of immediate vulnerability for the Japanese Yen followed by potential relief further out. MUFG cautions that as long as global energy prices remain elevated and yields outside Japan stay high, USD/JPY will remain pinned near YTD highs, with a September BoJ hike serving as a supportive measure rather than a total trend reversal. Meanwhile, Commerzbank maintains a constructive multi-quarter outlook, predicting that a turnaround in sentiment and eventual US monetary easing will drive USD/JPY down toward 145.00 over the medium term.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
BNY's Geoff Yu highlights that Brent has surged into the high $90s as Houthi attacks and U.S.-Iran escalation raise disruption risks around the Strait of Hormuz and Red Sea. Bond markets are treating this as an inflation shock, with higher yields and tighter financial conditions. Yu warns that Oil near $100 combined with rising yields is a stagflationary, risk-dampening mix.
Brent surge seen as inflation shock
"A Houthi spokesman said the group had targeted two oil tankers in the Red Sea. This widens the Iran conflict into a key shipping corridor just as the Red Sea becomes a workaround for crude exports disrupted by tensions around the Strait of Hormuz. The reported tanker strike off the coast of Saudi Arabia pushed Brent above $96/barrel, adding to concerns that the war is moving from regional military escalation into a broader energy and inflation shock."
"Renewed U.S.-Iran escalation and Houthi attacks have revived disruption risk around the Strait of Hormuz and the Red Sea. Bond markets are treating this as an inflation shock rather than a conventional risk-off event. Treasury, Bund and gilt yields are rising as investors price in a more persistent energy shock and put additional tightening back into global curves."
"Oil is tightening financial conditions before central banks have resolved the trade-off between inflation and growth. Asia can still trade the technology cycle, but Europe is absorbing the energy and rates shock."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD rebounds as the US Dollar regains momentum.
- Higher Oil prices provide only limited support for the Canadian Dollar.
- Canadian Retail Sales meet forecasts, while Retail Sales Excluding Autos fall short of expectations.
USD/CAD rebounds on Thursday as the US Dollar (USD) regains momentum amid rising tensions in the Middle East and growing Federal Reserve (Fed) rate hike bets, while traders show a muted reaction to Canadian Retail Sales data. At the time of writing, the pair trades around 1.4088, recovering from an intraday low of 1.4056.
Retail Sales rose 1.0% MoM in May, matching expectations and accelerating from a 0.4% increase in April. Retail Sales Excluding Autos climbed 1.2%, below the 1.4% forecast, after remaining flat in the previous month.
The United States and Iran exchanged attacks for a 12th consecutive day, while supply disruptions around the Strait of Hormuz spread to the Bab el-Mandeb Strait. The threat to two major shipping routes pushed Oil prices higher, adding to global inflation concerns. West Texas Intermediate (WTI) crude trades near $92.00 per barrel, its highest level since June 11.
Higher Oil prices typically benefit the Canadian Dollar, given Canada’s position as a major crude exporter. However, the Loonie is struggling to draw meaningful support as firm US Dollar demand and diverging monetary policy expectations outweigh the boost from Oil.
Markets now see a 78% chance of a Fed rate hike in September, up from 52% a week ago, according to the CME FedWatch Tool. The Fed is widely expected to leave interest rates unchanged at next week’s meeting, although traders still price in around a 32% chance of an immediate hike.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 101.30, rebounding from an intraday low of 100.94.
Meanwhile, the Bank of Canada (BoC) is expected to keep interest rates unchanged in the coming months, as core inflation stays close to the central bank’s 2% target.
Canadian Dollar Price Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | 0.25% | 0.33% | 0.00% | 0.28% | 0.72% | 0.32% | |
| EUR | -0.28% | -0.02% | 0.04% | -0.29% | 0.00% | 0.45% | 0.04% | |
| GBP | -0.25% | 0.02% | 0.04% | -0.29% | 0.01% | 0.47% | 0.05% | |
| JPY | -0.33% | -0.04% | -0.04% | -0.32% | -0.05% | 0.39% | -0.01% | |
| CAD | -0.00% | 0.29% | 0.29% | 0.32% | 0.27% | 0.72% | 0.31% | |
| AUD | -0.28% | 0.00% | -0.01% | 0.05% | -0.27% | 0.46% | 0.06% | |
| NZD | -0.72% | -0.45% | -0.47% | -0.39% | -0.72% | -0.46% | -0.42% | |
| CHF | -0.32% | -0.04% | -0.05% | 0.01% | -0.31% | -0.06% | 0.42% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
- EUR/USD trades around 1.1385 on Thursday, down 0.26% on the day following the European Central Bank's policy decision.
- The ECB keeps its three key interest rates unchanged, as widely expected, while reiterating its data-dependent approach.
- The US Dollar strengthens on renewed safe-haven demand amid escalating attacks between the United States and Iran.
EUR/USD trades around 1.1385 on Thursday after the European Central Bank (ECB) left its key interest rates unchanged, in line with market expectations. Following its July policy meeting, the central bank kept the main refinancing rate at 2.4%, the marginal lending facility rate at 2.65% and the deposit facility rate at 2.25%.
In its policy statement, the ECB said that the outlook for energy prices remains highly volatile and that the full inflationary impact of the recent energy shock has yet to materialize. The central bank reiterated that monetary policy decisions will continue to be taken on a meeting-by-meeting basis, guided by incoming economic data, the inflation outlook and the strength of monetary policy transmission. The ECB also stressed that it is not pre-committing to any particular interest rate path.
Despite the policy hold, the Euro (EUR) remains under pressure against the US Dollar (USD). The Greenback is benefiting from renewed safe-haven demand following a fresh escalation in the United State's (US) war on Iran. The US carried out strikes against Iran for the 12th consecutive night, while Tehran retaliated by targeting US military bases in Jordan and Bahrain.
Tensions have also intensified in energy markets. After disruptions in the Strait of Hormuz, attacks by Yemen's Ansar Allah on two Saudi Oil tankers in the Red Sea are now threatening traffic through the Bab el-Mandeb Strait. Against this backdrop, West Texas Intermediate (WTI) US Oil trades around $89.50 per barrel, up roughly 28% so far this month.
The sharp rise in energy prices is adding to inflation concerns in the United States and strengthening expectations that the Federal Reserve (Fed) may need to tighten monetary policy. According to the CME FedWatch Tool, markets are now pricing in a 78% chance of a rate hike at the September meeting, up from 52% one week ago.
The US Dollar is also drawing support from comments by US Secretary of State Marco Rubio, who warned that military strikes against Iran could intensify as long as Tehran refuses to negotiate, while also urging the Houthis to halt their attacks. This heightened geopolitical uncertainty continues to support safe-haven flows into the Greenback, limiting EUR/USD's ability to recover.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.21% | 0.26% | -0.04% | 0.21% | 0.63% | 0.28% | |
| EUR | -0.24% | -0.02% | 0.04% | -0.30% | -0.03% | 0.40% | 0.04% | |
| GBP | -0.21% | 0.02% | 0.04% | -0.28% | -0.02% | 0.42% | 0.06% | |
| JPY | -0.26% | -0.04% | -0.04% | -0.31% | -0.07% | 0.35% | 0.00% | |
| CAD | 0.04% | 0.30% | 0.28% | 0.31% | 0.24% | 0.67% | 0.32% | |
| AUD | -0.21% | 0.03% | 0.02% | 0.07% | -0.24% | 0.44% | 0.09% | |
| NZD | -0.63% | -0.40% | -0.42% | -0.35% | -0.67% | -0.44% | -0.37% | |
| CHF | -0.28% | -0.04% | -0.06% | -0.00% | -0.32% | -0.09% | 0.37% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
- Initial Jobless Claims in the US declined by 22,000 in the week ending July 18.
- The USD Index stays in positive territory well above 101.00.
There were 187,000 Initial Jobless Claims in the week ending July 18, the US Department of Labor (DOL) reported on Thursday. This print followed the previous week's reading of 209,000 and came in much better than the market expectation of 212,000. The 4-week moving average stood at 207,500 in this period, a decrease of 7,250 from the previous week's revised average.
This was the lowest figure since 1969, according to Bloomberg analysts.
"The advance number for seasonally adjusted insured unemployment during the week ending July 11 was 1,796,000, a decrease of 2,000 from the previous week's revised level," the DOL further noted in it press release.
Market reaction
The US Dollar (USD) preserves its strength after this data. At the time of press, the USD Index was up 0.22% on the day at 101.35.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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