The European Refinancing Rate Increase Could Strengthen The Euro Currency

For decades, the strength of recovery from recession is often driven by monetary policymaker’s decisions. The European Central Bank has left its interest rate low in order to push its economy towards its policy goals of maximum employment and price stability. From the outlook, the economy has continued to rebound strongly from the downturn and its Gross Domestic Product (GDP) grew with strong speculation for further growth beyond the pre-pandemic level in the near term. It is assertive that the speed of recovery from the covid-19 pandemic hit is massive because it took the Euro area seven years to recover from the 2010 great financial crisis. This was managed solely by the strong and combined fiscal and monetary policy responses through lower rates and tax decline.

Though, growth momentum experienced moderation due to high energy prices and supply chain constrain. This challenge is strengthening weakness in outlook and weighing strongly on manufacturing production, though consumer spending remains solid. There is speculation these constrain to stay elongated for several months but could ease up in 2022. High energy prices are another factor dampening the growth spectrum and limiting currency purchasing power. Inflation stays astronomically high above 4.1%.

Recently on the policy tapering deliberation, president of the European Central Bank Christian laggard stated that “tightening monetary policy now could choke off the euro zone’s recovery”. This view is declining investor expectations and calls for policy tightening. Though, with the rising level of inflation above the target range, the European Central Bank is under increased pressure to tighten policy and increase rates in order to resolve soaring prices and erode households’ purchasing power. However, Laggard in her statement stated that “bank would moderately reduce the pace of the pandemic-era bond-buying program that it has used to ease the impact of the coronavirus on the Eurozone economy””.

From the job market landscape, the labour barometer has signaled an improvement though at slow pace and below the pre-pandemic state.  Another positive is that its unemployment rate declined to 7.4% from the 7.5% previous high. The manufacturing PMI average 51.34 points indicating an industry expansion.

The Public sentiment holds firm as the European stocks such as Adidas, Allianz, BMW etc. are holding firm in gains

Regardless, traders should brace themselves up for a period of high volatility as the Main Refinancing Rate report often have a great impact on the FOREX market. An increase in the Main Refinancing Rate will usually strengthen the EUR (Euro), while its decrease will usually weaken the EUR (Euro).

Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on. 

The currency pairs that include the EUR (Euro), the European stocks, and indexes are mostly affected by the data release and they can be traded on the ACT brokers trading platform (actmarkets.com) with the best spread trade execution and speed.

. The pairs include: EURUSD, XAUEUR, XAGEUR, EURAUD, EURCAD, EURCHF, EURCZK, EURGBP, EURHUF, EURJPY, EURNOK, EURNZD, EURSEK, EURTRY, EURZAR, BMW, ADIDAS, Allianz, etc. 

Time Schedule for the next Main Refinancing Rate Report:

Date: Thursday. December 16th, 2021.

Time: 1:45pm (GMT + 1).                          

Author:
Amogo Solomon is a Broker-Dealer/Market Research analyst and writer in ACT Brokers with a background in Computer Science, Data Analytics, and Forex Broker Dealing. He specializes in Forex Dealing, markets Analysis, Currency research, forex fundamental and technical analysis, and Monitoring of Forex trends, Stocks, Equities, Cryptos, and Commodities. He possesses strong technical and analytical skills and is well known for his entertaining and informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Computer Science and Nanodegree in Programming for Data Science Enterprise.

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