- The EUR/CAD has retreated since 1,6110, the highest level since March 2018, marked on Tuesday.
- The ECB member, Lane, said the Central Bank must be prepared to counteract any deviation in the CPI.
- The CAD linked to raw materials fights in the midst of signals that OPEC+ could advance with plans to increase oil production.
The EUR/CAD goes back after reaching 1,6110 on Tuesday, the highest level since March 2018, quoting around 1,6080 during the European session on Wednesday. The crossing of currencies is depreciated as the euro (EUR) faces challenges, driven by the preliminary inflation of the Eurozone, which stood in 2% as expected, staying in the objective of the European Central Bank (ECB). The operators will probably observe the unemployment rate of the eurozone scheduled to be published later on Wednesday.
The chief economist of the European Central Bank (ECB), Philip Lane, said Tuesday that the Central Bank must be prepared to respond to any deviation in the Consumer Price Index (IPC). The next five years are expected to be dynamic, with 10% rates included in the BCE base stage, Philip added.
The Commissioner of the European Union (EU), Maros Sefcovic, will travel to Washington to meet with the US commercial representative, Jamieson Greer, and the secretary of Commerce, Howard Lutnick, in an effort to advance in tariffs on tariffs, according to Bloomberg.
The EUR/CAD could recover land as the Canadian dollar (CAD) linked to raw materials fights due to depressed crude oil prices, driven by signs that OPEC+, the organization of oil exporting countries and its allies, including Russia, will proceed with their increase in planned production in August.
Canada suspended its plans to collect a new digital services tax aimed at the technological companies of the United States. The measure continues to the abrupt decision of President Donald Trump on Friday to withdraw from conversations about the tax proposed to US technological giants.
Central Banks – Frequently Questions
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
