European Central Bank
The European Central Bank (ECB) is the prime component of the Eurosystem and the European System of Central Banks (ESCB). It is also one of seven institutions of the European Union. At the time of this writing the ECB is one of the most important central banks in the world.
In this Wiki we will explore the ECB structure, [Forward guidance], the ECB meetings, their mandate and more.
Europe – European Central Bank (ECB)
The European Central Bank, or ECB for short, was established in 1999. The group within this central bank that decides monetary policy is called the Governing Council. The council consists of 6 members from the executive board of the ECB and the individual governors from each of the Euro area member nation central banks.
This means that all countries including Germany, France, and Spain have a spot at the table to ensure their voices are heard. This ensures that when policies are made they are designed with all Euro Zone members in mind. It’s important to make sure that no one policy is drafted that will adversely impact a specific member nation but benefits others greatly.
ECB Provides Forward guidance
The ECB likes to provide the market with forward guidance just like the Federal Reserve does. This is their way of attempting to control price stability within the Euro currency.
The ECB’s Mandate
The ECB’s mandate is price stability and sustainable growth within the Eurozone. However, they also strive to maintain an annual CPI (consumer price index) of just below 2%. They do this because, as an export dependent economy, the ECB has a vested interest in preventing the Euro currency value from getting too high. This is because having a high Euro value could hurt the exporting companies within the Eurozone. Exporting companies are more profitable if they are paid with higher-value currencies.
The ECB meets most months of the year. When they make changes to policies they also host a press conference to go along with their statement and explain to the markets why they chose to make certain policy changes. As a trader, you know that something important is going to happen if the ECB calls a press conference with the release of their minutes because they have obviously changed some parts of their policies.
These press conferences will start with prepared remarks and typically have a question-and-answer session after. If you are day trading it’s very important to listen out for any questions about monetary policy that may happen because these questions tend to lead to unscripted answers that may be important to your trades.