Posts Tagged ‘european central bank’

Euro hesitates against dollar

Monday, April 4th, 2011

On Monday the euro hesitated against the dollar in an undecided market, after momentarily climbing to its highest level in five months, as investors anticipate an increase in rates by the European Central Bank (ECB) this week. The euro currency was worth 1.4219 dollars. It climbed in Asian trade to 1.4268, its highest level since November 4, before declining and then rising again. The euro steadied against the Japanese currency to 119.41 yen.

The ECB has hinted that it would use its next meeting on Thursday to raise its key rate to fight against the acceleration of inflation in the euro area. President Jean-Claude Trichet has indicated several times since early March a possible increase in April of the key rate which has been maintained at the very low level of 1% since May 2009, allowing the euro to advance significantly in recent weeks. It seems that market participants are already anticipating a 25 basis point rate by the ECB (an increase in rates makes a currency more attractive as more profitable).

The ECB press conference on Thursday is expected to generate considerable interest from investors, who scrutinize any sign that may indicate that the expected rate increase will mark the beginning of a cycle of tighter monetary policy in the euro area, with a second rate hike by summer. This perspective could instead reinforce concerns over the most indebted countries in the euro area, like Greece, Ireland and Portugal, while the latter is already groaning under very onerous debt markets and suffer from negative growth.

For its part the U.S. currency remained under pressure, despite the encouraging figures of the monthly report on employment in the United States on Friday. The president of the New York branch of the U.S. Federal Reserve said on Friday that the economic recovery in the U.S. remained fragile, with too high an unemployment rate, removing the likely prospect of a rate hike by the Fed. Investors will also monitor the decisions of monetary policy by the Bank of Australia and Bank of England, Tuesday and Thursday respectively, traders expecting a status quo from both institutions. The Australian dollar rose to 1.0417 U.S. dollar on Monday, its highest level since it has been decided to float the currency in 1983.

The British pound rose against the European single currency at 88.15 pence per euro, and against the greenback at 1.6131 dollar. The Swiss currency gained ground against the euro at 1.3116 Swiss francs to one euro, as against the greenback at 0.9225 Swiss francs to the dollar. One ounce of gold finished at 1435.50 dollars at tonight’s auction, also near its highest level. The Chinese currency has in turn yuan finished at 6.5450 per dollar.

Status quo on rates in the euro zone

Thursday, June 4th, 2009

The European Central Bank (ECB) has not changed its interest rates today, resisting pressure for a monetary gesture to stimulate a European economy that shows some early signs of recovering from the recession.

The ECB also said that it will make bond repurchase directly from the market from July to June 2010. The Bank of England is also observing a similar monetary status quo, keeping its intervention rate to 0.5%. Denmark announced a symbolic rate cut of 10 basis points to 1.55%.

The Bank of England said that it is continuing its program of acquisition of £125 billion ($143 billion) in Bonds to stem the recession.  ECB’s Chairman Jean-Claude Trichet announced Thursday the operating procedures of the operation for the European Union. The purchases, totaling €60 billion euros will be distributed throughout the euro area and it will be direct repurchases.

Considering that the risks to the economic outlook are broadly balanced, Trichet also believe that after a very weak first quarter, the economic contraction for the remainder of the year will be probably at less severe rates.

The Federal Reserve which, as the BoE and the Bank of Japan has cut rates below the threshold of 1% corresponding to the refinancing rate of the ECB is already examining the possibility of increasing rates to curb the enormous impact of its massive easing of the recent months.

The average interest rate on the planet in general has never been so low, and Central Banks will soon have to face the difficult issue of how to absorb the massive liquidity that has flown into the markets during the past year.

Today’s signs of slowing of the recession included unemployment numbers in the U.S. that fell for the third week in a row and retail sales in the euro zone that rose in April for the first time in five months, which bodes well for consumer spending despite the recession, even if this recovery is slow.

These good news led to today’s rally on Wall Street ( the Dow Jones was up 0.86%). The bull market continues, with its corollary of greenback weakness (EUR/USD=141.82).

Other good macroeconomic news were that housing  prices rose in May in Great Britain at their most sustained pace in six and a half years.

Long bond yields rose as the markets must absorb large offers of sovereign debt related to the various economic plans put in place around the world. This could later lead to fear that the rise in long rates may stifle the beginnings of the recovery.