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ECB and the Fed: The differential of rates is growing
On Thursday, July 26, the ECB will hold another meeting on monetary policy. As expected, the ECB will keep the base rate at zero level, and the rate on deposits for banks at -0.4%.
The euro fell this year from a high of around 1.25 to the dollar to 1.1700 around these days, as the US Central Bank - the Fed - on the contrary, is slowly but surely raising the rate - now the Fed rate is 1.75 - 2%, but two more hikes are expected at 0.25% before the end of the year.
The decline of the euro against the dollar has caused public criticism of the Fed by US President Trump. Trump believes that the Fed's rate hike raises the dollar and helps Europe and China compete with goods produced in the US.
The ECB at the last meeting said that it will not raise the rate at least until the summer of 2019, so as not to slow down the growth of the eurozone economy. In the US, growth is at 4.5% per annum, and the US economy is ready to withstand a rate hike, according to the Fed.
The ECB is expected to speak at the meeting on Thursday about the risks of slowing economic growth in the eurozone and the risks of trade wars organized by Trump.
Paradoxically, the decline in the euro is caused, among other things, by Trump's verbal attacks on the EU - promises to raise duties on cars from Germany clearly threaten the euro. Although, it would seem, Trump wants to reduce the dollar.
Yes, the ECB policy keeps the euro low against the dollar. But is it the ECB's goal to lower the euro? No, rather not. The ECB's goal is to support the growth of the eurozone economy by donating the euro exchange rate, if necessary.
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