🇪🇺 Euro Forex Handbook (October CPI Update)

EURO

The euro is the official currency of 19 out of the 27 member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens as of 2019. The euro is divided into 100 cents.

As of 2013, the euro is the second-largest reserve currency as well as the second-most traded currency in the world after the United States dollar. As of December 2019, with more than €1.3 trillion in circulation, the euro has one of the highest combined values of banknotes and coins in circulation in the world.

The name euro was officially adopted on 16 December 1995 in Madrid. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1 (US$1.1743). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members, and by March 2002 it had completely replaced the former currencies.

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EUROPEAN CENTRAL BANK

MAIN REFINANCING OPERATION RATE

The Main Refinancing Operation Rate was hiked by 75bps on the 8th of September to 1.25 percent. The next meeting is on Thursday the 27th of October and the long term outlook is for hawkish hikes.

• 75bps hike expected

• Policymakers also said that interest rates should rise further over the next several meetings, aiming to dampen demand and guard against the risk of a persistent upward shift in inflation expectations, but any changes will continue to be data-dependent and follow a meeting-by-meeting approach.

• Previously 50bps hike to 0.50%

• Source, European Central Bank

In the Euro Area, the benchmark interest rate is set by the  Governing Council which consists of six members from the Executive Board plus governors of the national central banks from the nineteen countries using the euro.

GOVERNING COUNCIL STATEMENT HIGHLIGHTS (SEPTEMBER)

• Raised the three key ECB interest rates by 75 basis points.

• The Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.

• Future policy rate decisions will be data-dependent and follow a meeting-by-meeting approach.