- The EUR/GBP can lose ground as the euro fights after the dovish comments of the ECB officials.
- François Villeroy de Galhau of the ECB said that the Central Bank could cut interest rates despite the volatile oil market.
- The governor of the BOE, Andrew Bailey, said that the impact of commercial tariffs on inflation is more uncertain.
The EUR/GBP advances slightly after registering losses in the previous session, quoting around 0.8530 during Wednesday’s Asian hours. However, the Currency Crossing faced challenges as the euro (EUR) lost ground after the dovish statements of the officials of the European Central Bank (ECB).
The head of the ECB monetary policy, François Villeroy de Galhau, told Financial Times on Tuesday that the Central Bank could still cut interest rates despite the volatility observed in the oil market. Meanwhile, the head economist of the ECB, Philip Lane, said that “our monetary policy will have to take into account not only the most likely path (the baseline) but also the risks to activity and inflation,” according to Reuters.
The governor of the Bank of England (BOE), Andrew Bailey, said during his testimony before the Lords Economic Affairs Committee on Tuesday that the impact of commercial tariffs on inflation is more ambiguous than the impact on economic growth. Bailey also said: “I think we are beginning to see a cooling in the labor market.” “It is likely that salary agreements decrease,” according to Reuters.
Meanwhile, the vice governor of the BOE, Dave Ramsden, said that if the evidence becomes more solid that inflation will be below the target, they can accelerate feat cuts. Ramsden added that the United Kingdom (UK) has a challenging fiscal environment, although it is less concerned than other members of the Monetary Policy Committee that disinflation stops.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
