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If you are new when it comes to trading and you hear the letters ECB, they are referring to the European Central Bank, which is the monetary authority of the Eurozone. The ECB is in charge of setting monetary policy, like its counterparts such as the Federal Reserve and the Bank of England.
ECB's remit covers several countries, and we are speaking of the ones who use the Euro as their currency. The ECB also has to work with the national banks to maintain the Euro's inflation and stability.
All ECB policy decisions impact Forex traders and their trading, mainly because they have a significant effect on the value of the Euro and European companies.
The ECB as an institution
Unlike many other major central banks, the ECB is a relatively new institution. It was formed in Germany back in 1998, which makes it 85 years younger than the Federal Reserve System of the United States and 304 years younger than the Bank of England.
The ECB is the world's second most influential central bank, and it serves as one of seven institutions of the European Union. The bank's capital stock is own by all 28 central banks of every EU member state. The current president of the European Central Bank is Christine Lagarde, and the headquarters are located in Frankfurt, Germany. The bank was seated in the Eurotower until 2015, but now it has its own building.
The Objective of this essential central bank is to maintain price stability in the Eurozone. Its primary tasks are to set and implement the monetary policy for the Eurozone, conduct foreign exchange operations and to take care of the international reserves of the European System of Central bank.
This central bank follows the rules of European law directly. It has a capital of over 11 billion euros. It is essential to know that shares in the ECB cannot be transferred or uses ad collateral.
How The ECB affects trading
Understanding how the ECB works can bring your trading game to the next level and help you apply the right strategies. The European Central bank is the fundamental key when it comes to the clause of the Euro. The Euro tends to depreciate or appreciate depending on changes when it comes to interest rates expectations, not always actual changes.
So when the ECB starts to decide on how to handle the economy, it will immediately begin to affect the value even before they announce their final decision. Also, it is crucial to understand that rising inflation does not mean that the European Central Bank will increase interest rates; it depends mostly on the balance between economic growth and inflation.
The ECB will start to raise rates if they consider inflation to be close to, at, or even above target. Here is where we remember that their goal is to maintain price stability.
For every trader, knowing the most recent decisions of the European Central Bank is a must if they want to be successful. It is all about the numbers and how they will go up and down and how the ECB has very high power when it comes to affecting the Forex trading world and investments in general.
